[ Source: http://www.google.com/hostednews/ap/article/ALeqM5irvO5kDqdoM6_-4XVVj4FSTn3KUgD996KKJO2 ]



By STEPHEN MANNING and DAVID PITT (AP) – Jul 2, 2009



WASHINGTON (AP) — Six Illinois banks and one bank in Texas were shuttered Thursday as government regulators proposed new rules for private equity firms seeking to take over failed banks.



Regulators shut down John Warner Bank of Clinton, Ill.; First State Bank of Winchester in Winchester, Ill.; Rock River Bank of Oregon, Ill.; Elizabeth State Bank of Elizabeth, Ill.; Danville, Ill.-based The First National Bank of Danville; Founders Bank of Worth, Ill.; and Dallas-based Millennium State Bank of Texas, bringing the number of U.S. bank failures this year to 52.



That's more than double the 25 which failed in all of 2008 and the three closed in 2007. The Federal Deposit Insurance Corp. was appointed receiver of all seven. The total cost to the Deposit Insurance Fund from the seven closings will be $314.3 million, the FDIC said.



The failure of the six Illinois banks, which are all controlled by one family, resulted primarily from losses on investments in risky instruments known as collateralized debt obligations and other loan losses, the FDIC said. The closings bring to 12 the number of Illinois banks closed this year.



Deposits of John Warner Bank were acquired by Lincoln, Ill.-based State Bank of Lincoln. Three John Warner Bank branches will reopen on Friday as branches of State Bank of Lincoln, the FDIC said in a statement.



As of April 30, The John Warner Bank had total assets of $70 million and total deposits of approximately $64 million. In addition to assuming all the deposits of the failed bank, State Bank of Lincoln agreed to buy about $63 million of assets. The FDIC will retain the remaining assets for later disposition.



The deposits of First State Bank of Winchester were acquired by Beardstown, Ill.-based The First National Bank of Beardstown. Two offices will reopen on Monday under the new bank name.



The First State Bank of Winchester had total assets of $36 million and total deposits of approximately $34 million as of April 30. The First National Bank of Beardstown also agreed to buy about $33 million of assets.



Rock River Bank's deposits and most of its assets were acquired by The Harvard State Bank of Harvard, Ill. Four bank branches will reopen on Monday as Harvard banks.



At the end of April, Rock River Bank had $77 million in assets and $75.8 million in deposits.



The Elizabeth State Bank's two offices will reopen Monday as branches of Galena State Bank and Trust of Galena, Ill. In addition to assuming all of the failed bank's deposits, Galena agreed to buy $52.3 million of the bank's assets.



The Elizabeth State Bank had total assets of $55.5 million and total deposits of $50.4 million at the end of April.



The seven offices of The First National Bank of Danville will reopen on Monday as branches of First Financial Bank of Terre Haute, Ind., which assumed all of the bank's deposits. As of April 30, The First National Bank had total assets of $166 million and total deposits of $147 million.



The PrivateBank and Trust Co. of Chicago agreed to assume all of the deposits of Founders Bank. Its 11 offices will reopen on Monday as branches of The PrivateBank, which also agreed to buy $888.4 million of assets.



As of April 30, Founders Bank had total assets of $962.5 million and total deposits of $848.9 million.



Millennium State Bank of Texas became the first bank in Texas to fail this year. Its sole office will reopen on Monday as a branch of Irving, Texas-based State Bank of Texas, which is assuming all of Millennium's deposits. State Bank of Texas also agreed to buy essentially all of the bank's assets.



As of June 30, Millennium had total assets of about $118 million and total deposits of $115 million.



Under new rules proposed Thursday by the FDIC, private equity firms seeking to buy failed banks would face strict capitalization and disclosure requirements, but some regulators already warn the proposal may go too far.



The FDIC is seeking to expand the number of potential buyers for the growing number of banks it has closed during the financial crisis. With mounting interest from private equity firms, whose methods and motives aren't always clear, the FDIC is trying to set requirements to ensure the banks won't fail again.



One of the new proposals under discussion would require investors to maintain a healthy amount of cash in the banks they acquire, keeping them at about a 15-percent leverage ratio for three years. Most banks have lower leverage ratios, which measure capital divided by assets.



Investors also would have to own the banks for at least three years and face limits on their ability to lend to any of the owners' affiliates.



Regulators said their intent was to tap into the potentially deep source of private equity, while ensuring that banks remain well capitalized once they are sold.



"We want nontraditional investors," FDIC Chairman Sheila Bair said at the board meeting. "There is a significant need for capital and there is capital out there."



Still, some regulators worried that the rules could stifle a potentially valuable new source of investment. Bair said the proposal was "solid," but acknowledged that some details, including the high capital requirements, could be controversial.



Comptroller of the Currency John Dugan said that the rules, which will now be subject to public comment, may be too restrictive.



The Private Equity Council, a Washington-based advocacy group for firms, criticized the proposed FDIC guidelines. In a statement, the group's president, Douglas Lowenstein, said the proposals would "deter future private investments in banks that need fresh capital."



The proposals will be subject to a 30-day public comment period, after which the bank regulators likely will meet again to finalize the rules, said FDIC spokesman David Barr.



The FDIC monitors the health of banks to ensure that they have enough capital to stay afloat and cover their deposits. When banks get in trouble, the FDIC can seize and sell them. Prior to Thursday, the FDIC already had closed 45 banks this year, many of them community or regional institutions. That compares with 25 failures last year and three in 2007.



The FDIC already has brokered two sales this year to entities controlled by private equity firms. In March, the government sold IndyMac Federal Bank for $13.9 billion to a bank formed by investors that included billionaire George Soros and Dell Inc. founder Michael Dell.



But the business practices and ownership of the lightly regulated pools of investor funds often can be difficult to penetrate. The FDIC proposals include requirements meant to pry some information out of the investors, including disclosing the owners of private equity groups. The FDIC rules also would prevent the groups from using overseas secrecy laws to shield details of their operations.



Under the regulations, banks also would not be sold to investors with so-called "silo" structures that make it hard to determine who is behind a private equity group.



The FDIC had 305 banks with $220 billion of assets on its list of problem institutions at the end of the first quarter, the highest number since the 1994 savings and loan crisis.



AP Business Writer David Pitt reported from Des Moines, Iowa.



Copyright © 2009 The Associated Press. All rights reserved.

[ Source: http://www.washingtonsblog.com/2009/06/shaving-stability-off-of-money-supply.html ]



Monday, June 29, 2009



In a fascinating 22-page study [ http://www.weberglobal.net/Historyofmoneycompleter.pdf ] of money and currency, Christopher Weber shows that every government - from Athens, to pre-collapse Rome, to the Islamic countries in the Middle Ages - which stuck to the Greek standard of coins has been stable and prosperous.



Specifically, the Athenian Drachma contained 65.6 grains of silver. Even after Greece declined as a superpower, its currency remained stable.



The Roman Denarius, Byzantine Bezant, and Islamic Dinar all copied the Drachma, using around 65.6 grains of gold or silver in their coins.



For the many centuries the Romans, Byzantines, and Islamic rulers left this precious metal content alone, they had stable and prosperous money supplies and nations.



But after the Romans and Byzantines started to whittle down the precious metal content of their coins - and after the Muslims started issuing paper money - their currency went down the drain, their prosperity plummeted and their empires collapsed.



This may all sound like ancient history, except that Weber points out that:

The US dollar has been depreciating for generations. Seventy years ago it was first devalued from $20.67 a gold ounce to $35. Then 35 years ago the devaluation started gaining strength. The dollar has lost over 90% of its gold value since August 15, 1971.

History is repeating . . . Sound money is again being trashed, which is causing the collapse of the American empire.

[ Source: http://www.gold-eagle.com/editorials_08/summers061209.html ]



Graham Summers

June 12, 2009



Today's essay details the ongoing collapse of the US economy with a focus on why this coming fall will prove the "worst is over" crowd wrong yet again. Earlier this week, I detailed three major developments. They were:

The US's economic shift from manufacturing to services (mainly financial)


The massive drop in US incomes


The beginning of the debt bubble

Today, we're addressing how the debt bubble encapsulated the US government as well as why Obama's Stimulus Plan won't fix anything.



To revisit the above three points, the US began outsourcing jobs in earnest soon after we re-opened trade with China in 1971. As outsourcing spread to higher and higher skilled jobs, this meant fewer jobs in the US market. This resulted in US consumers having to use credit to maintain their standard of living. It also meant more than one parent working to make ends meet.



On a national level, the US government began living beyond its means as well. Adjusted for inflation, gross tax receipts have only risen 40% in the last 39 years. However, over the same time period, total government spending increased 2,600%!!!



To fund this insanity, the US issued debt in the form of Treasuries. Foreign governments (most notably China) which were generally getting richer selling us stuff loaded up. The whole scheme is similar to buying a toy from the store, then having the store lend you money to buy another toy… ad infinitum: hardly a sensible long-term plan for financial solvency.



Now, everyone knows we run deficits. But not everyone knows that the deficits we publish are unbelievably understated. Corporations, in order to qualify for generally accepted accounting principles (GAAP) have to count their pension and healthcare expenses for retirees.



Uncle Sam doesn't.



John Williams of www.shadowstats.com notes that official US deficit statistics do NOT include net present value of unfunded social security OR Medicare expenses. A lot of folks have made a big deal about the US running a $1 trillion deficit this year. Well, if you included the net value of those unfunded Social Security and Medicare expenses we cleared a $1 trillion deficit in 2007, a $5 TRILLION deficit in 2008 and are on course to clear a $9 TRILLION deficit this year.



To give you an idea of how big a problem these deficits are, consider that the US government could tax its citizens 100% of their earnings and NOT have a balanced budget.



In light of these issues, the government's $787 billion stimulus package doesn't exactly breed confidence in an economic turnaround. Incomes have lagged inflation in this country for 30+ years. Creating a bunch of temporary positions related to construction and the like is NOT going to alter this in any significant way.



Moreover, most of the job growth in the last 10 years has come from Bubbles: two out of five jobs created between 2002 and 2007 came from the housing industry. The irony here, of course, is that the Stimulus Plan is merely following this trend, creating jobs from our latest (relatively unreported) Bubble: the bubble in government spending and employment.



Bottomline: the US needs to create sustained job growth involving skilled professionals with high wage earning potential, NOT more guys laying concrete. We need fundamental structural changes to the US economy, NOT temporary positions resulting from one-time government projects.



And with a $9 trillion deficit in the works, $787 billion doesn't really mean much in terms of increased tax receipts. Also, and this is bit of a personal aside, it's hard to believe that throwing $787 billion towards creating jobs really shifts our economy away from financial services when we've thrown $2 trillion+ towards Wall Street and the banks (via direct loans and lending windows).



The US has a MAJOR debt problem. Including future social security and Medicare expenses we owe $65 TRILLION. Because we live in a world in which the words, "billion" get thrown around with too much ease, I'd like to put that number into perspective.



Let's say you have a stack of $1,000 bills. $1 million would be a stack eight inches high. $1 billion would be a stack 800 feet high (think the Washington Monument). And $1 trillion would be a stack 142 miles high. Total US debt, if laid on its side, would be a stack of $1,000 stretching more than 1/3 of the way around the earth.



Ok, so where is the US economy REALLY at right now?



Year over year real employment, real industrial orders, real housing starts, and real retail sales are all posting their largest drops since the production shutdown following WWII. Put another way, the last time the US economy fell this hard this fast, we were intentionally shutting down the monster than was the US war machine in WWII.



This is no recession. We are already on our way to a Depression (a GDP contraction of 10%) possibly even another Great Depression. One in nine Americans are currently receiving food stamps. Real unemployment (without birth/death seasonal nonsense and all the other Federal gimmicks) stands at 20%.



So I don't buy the "green shoots" theory at all. Having things get horrendous at a slightly slower rate is NOT a sign of a recovery. Green shoots can pop up anywhere including the asphalt in the parking lot outside my office. That doesn't mean the parking lot is about to become a lush meadow.



No, the US is heading for a really, really rough time. The US monetary base has doubled in the last year. We owe $65 trillion in liabilities. The US government could tax every company and every American 100% of their annual incomes AND NOT PAY THIS OFF. The Feds will have to inflate this mess away. And they've got a master money printer Ben Bernanke overseeing this situation.



Now, I cannot foretell precisely how this will all play out. Typically when a bubble bursts it takes 10+ years, possibly an entire generation, before the assets that participated in the Bubble return to new highs (sometimes they NEVER do).



Now, we just got off the biggest credit/ debt bubble in the world's history. I'm talking about 30+ years of spending money we don't have culminating in a period in which Americans were speculating in the single largest asset they ever purchase (a house) without putting a cent of their own money at risk (0% down NINA loans).



We also saw a bubble in stocks, Treasuries, and most every other asset you can invest in. So the idea that we can recover from this in a couple of years seems over enthusiastic to say the least.



Remember, Japan experienced a similar Bubble (though they had higher savings than we did) and "lost" a decade of economic growth. It's worth noting that Japan WAS NOT an Empire like the US. Japan did not have with bases in 170 countries, a world reserve currency, and a crippled job market (history rhymes, it does not repeat).



So in terms of the real US economy, I don't foresee a recovery anytime soon. The stock market may soar thanks to the Fed's money printing, but a jump in financial speculation is NOT an economic recovery. If the S&P 500 goes to 20,000, but we're drinking $1,500 beer and wiping ourselves with $100 bills, we haven't gotten richer (never mind the fact that an S&P 500 of 20,000 DOESN'T create jobs).



So how will we know when a bottom is in and the economy will recover? I've postulated a few signs (some humorous, others not so pleasant). Bear in mind, much of this in tongue in cheek. But like all sarcasm, there's a grain of truth.



We will bottom WHEN:

CNBC and Bloomberg start firing anchors and cutting their coverage time by hours, not minutes.


Maria Bartiromo and Jim Cramer start telling investors to short the market with all they've got.


Questions like "do you think we're heading for a recovery" result in the questioner getting punched in the face or ignored like a loony tune.


People HATE stocks and stock ownership has plummeted back to one in ten Americans (the pre-401(k) levels).


Investing is no longer a hobby and people fight tooth and nail to retain their nest egg (honestly what the hell is "play" or "speculative" money?)


The number of mutual funds has fallen by at least half (why are we paying fees for people who can't beat the market?).


People no longer want to get an MBA to become a broker or a financial advisor.


Our economy is based on "making something," not "offering advice."


Books about Warren Buffett no longer comprise an entire publishing industry (seriously, Amazon lists 5,000+ books on him).


The Richest 500 people in the world are no longer all billionaires (never happened before in history… how's that for concentration of wealth?)


Guys like me are no longer writing about finance or investing but instead take up a respectable profession.

Then… we will have probably hit bottom. In the meantime, I've prepared a FREE Special Report detailing three investments that will soar when the Second Round of the Financial Crisis hits. I call it the Financial Crisis Round Two Survival Kit. Swing by www.gainspainscapital.com/roundtwo.html to pick up your free copy today.



Graham Summers

[ Source: http://www.moneyandmarkets.com/new-hard-evidence-of-continuing-debt-collapse-34202 ]



by Martin D. Weiss, Ph.D.[1] 06-15-09



While most pundits are still grasping at anecdotal “green shoots” to celebrate the beginning of a “recovery,” the hard data just released by the Federal Reserve reveals a continuing collapse of unprecedented dimensions.



It’s al[2], which I’ve posted on our website with the key numbers in a red box for all those who would like to see the evidence.



Here are the highlights:



Credit disaster (page 11[3]). First and foremost, the Fed’s numbers demonstrate, beyond a shadow of a doubt, that the credit market meltdown, which struck with full force after the Lehman Brothers failure last September, actually got a lot worse in the first quarter of this year.



This directly contradicts Washington’s thesis that the government’s TARP program and the Fed’s massive rescue efforts began to have an impact early in the year.



In reality, the credit market shutdown actually gained tremendous momentum in the first quarter. And although it’s natural to expect some temporary stabilization from the government’s massive interventions, the first quarter was SO bad, it’s impossible for me to imagine any scenario in which the crisis could be declared “over.”



Here are the facts:

We witnessed one of the biggest collapses of all time in “open market paper” — mostly short-term credit provided to finance mortgages, auto loans, and other businesses. Instead of growing as it had in almost every prior quarter in history, it collapsed at the annual rate of $662.5 billion. (See line 2.)




Banks lending went into the toilet. Even in the fourth quarter, when the meltdown struck, banks were still growing their loan portfolios at an annual pace of $839.7 billion. But in the first quarter, they did far more than just cut back on new lending. They actually took in loan repayments (or called in existing loans) at a much faster pace than they extended new ones! They literally pulled out of the credit markets at the astonishing pace of $856.4 billion per year, their biggest cutback of all time (line 7).




Meanwhile, nonbank lenders (line 8) pulled out at the annual rate of $468 billion, also the worst on record.




Mortgage lenders (line 9) pulled out for a third straight month. (Their worst on record was in the prior quarter.)




And consumers (line 10) were shoved out of the market for credit at the annual pace of $90.7 billion, the worst on record.




The ONLY major player still borrowing money in big amounts was the United States Treasury Department (line 3), sopping up $1,442.8 billion of the credit available — and leaving LESS than nothing for the private sector as a whole.

Bottom line: The first quarter brought the greatest credit collapse of all time.



Excluding public sector borrowing (by the Treasury, government agencies, states, and municipalities), private sector credit was reduced at a mindboggling pace of $1,851.2 billion per year!



And even if you include all the government borrowing, the overall debt pyramid in America shrunk at an annual rate of $255.3 billion (line 1)!



Asset-backed securities (ABS) got hit even harder (page 34[4]). This is the sector where you can find most of the new-fangled “structured” securities — the ones Washington had already identified as a major culprit in the credit disaster.



Did they make any headway in stopping the ABS collapse? None whatsoever! The total outstanding in this sector (line 3) fell at an annual pace of $623.4 billion in the first quarter, the WORST ON RECORD!



U.S. security brokers and dealers were smashed (page 36[5]). Brokers were forced to reduce their total investments at the breakneck annual pace of $1,159.2 billion in the first quarter, after an even hastier retreat in the prior quarter (line 3)!



What’s even more revealing is that they were so pressed for cash, they had to dump their Treasury security holdings in massive amounts — at an annual pace of $424 billion (line 7)! Given the Treasury’s desperate need for financing from any source, that’s not a good sign!



Government agencies got killed (page 43[6]). Households dumped their Ginnie Maes, Fannie Maes, Freddie Macs, and other government-agency or GSE securities like never before in history, unloading them at the go-to-hell annual clip of $1,395.7 billion (line 6).



And the rest of the world (mostly foreign investors), which had started unloading these securities in the third quarter of last year, continued to do so at a fevered pace (line 10).



Mortgages got chopped again (page 48[7]). Home mortgages outstanding were slashed at an annual clip of $87.3 billion in the second quarter of last year, $324.2 billion in the third quarter, $271 billion in the fourth, and another $61 billion in the first quarter of this year (line 2).



A slowdown in the collapse? For now, perhaps. But the first quarter also brought the very first reduction in commercial mortgages, an early sign of bigger commercial real estate troubles ahead (line 4).



Trade credit is dying (page 51, second table[8]). If you’re in business and you don’t have cash on hand to buy inventories, supplies, or other materials, beware! Large and small corporations all over the country have been slashing trade credit at an accelerating pace (line 3).



In the first quarter of last year, this aspect of the credit crisis was still in its early stages; trade credit outstanding was shrinking at an annual pace of just $15 billion. But by the second quarter, this new disaster burst onto the scene at gale force, with trade credit getting docked at the rate of $151.2 billion per year. And most recently, in the first quarter of 2009, it was slashed at the shocking pace of $277.2 billion per year.



And I repeat:

With ALL of these figures, we’re not talking about a decline in new credit being provided, which would be bad enough. We’re talking about a collapse that’s so deep and pervasive, it actually wipes out 100 percent of the new credit and brings about a net reduction in the credit outstanding — a veritable dismantling of America’s once-immutable debt pyramid!

For the long-term health of our country, less debt is not a bad thing. But for 2009 and the years ahead, it’s likely to be traumatic, delivering …



The Most Wealth Losses of All Time



Who is suffering the biggest and most pervasive losses? U.S. households and nonprofit organizations (page 105[9])!



The losses have been across the board — in real estate, stocks, mutual funds, family businesses, life insurance policies, and pension funds.



In U.S. households alone, the losses have been massive: $1.39 trillion in the third and fourth quarters of 2007 (not shown on page 105) … a gigantic $10.89 trillion in 2008 … $1.33 trillion in the first quarter of 2009 … $13.87 trillion in all, by far the worst of all time.



And these losses have equally massive consequences for 2009 and 2010:

Deep cutbacks in consumer spending ahead, plus a virtual disappearance of conspicuous consumption …




More massive sales declines at most of America’s giant manufacturers, retail firms, transportation companies, restaurants, and more, plus …




Big losses replacing profits at most U.S. corporations!

Rescues That Make the Crisis Worse



The U.S. government has taken radical, unprecedented steps to counter this credit collapse. And for the moment, it HAS been able to avert a financial meltdown.



But no government, even one run amuck with spending and money printing, can replace $13.87 trillion in losses by households.



Consider just two of the government’s most egregious escapades:

On January 7, Fed Chairman Bernanke was so desperate to revive U.S. mortgage markets that he embarked on a new, radical program to buy up mortgage-backed securities. So far, he has pumped over a half trillion dollars of fresh federal money into that market. But it has barely made a dent; despite all his efforts, mortgage rates have zoomed higher anyway, snuffing out a mini-boom in mortgage refinancing.




Four months later, on May 17, the Fed was so desperate to revive other credit markets, it even caved in to industry appeals to finance recreational vehicles, speedboats, and snowmobiles, according to Saturday’s New York Times[10]. But that has barely made a dent in those industries. And the expansion of direct Fed financing to these esoteric areas is not possible without greatly damaging the credibility — and credit — of the U.S. government. Result: Higher interest rates.

Can Mr. Bernanke take even MORE radical steps? Can he trek where no other modern-day central banker has ever gone before?



Not without shooting himself in the foot! It still won’t be enough to avert a continuation of the debt crisis. Indeed, all it can accomplish is to kindle inflation fears, drive interest rates even higher, and actually sabotage any revival in the credit markets.



Look. The nearly $14 trillion in financial losses suffered by U.S. households has inevitable consequences. And massive, nonstop borrowings by the U.S. Treasury in the months ahead — driving interest rates still higher — can only make them worse.



My urgent warning: If you fall for Wall Street’s siren song that “the crisis is over,” you could be in for a fatal surprise.



Don’t believe them. Follow the numbers I have highlighted here. Then, reach your own, independent conclusions.



Good luck and God bless!



Martin



------



References:



1. http://www.moneyandmarkets.com/topic/experts/martin-d-weiss-phd

2. http://images.moneyandmarkets.com/1388/fed_%20flow_of_funds_%20q12009.pdf

3. http://images.moneyandmarkets.com/1388/flow_of_funds_page11.pdf

4. http://images.moneyandmarkets.com/1388/flow_of_funds_page34.pdf

5. http://images.moneyandmarkets.com/1388/flow_of_funds_page36.pdf

6. http://images.moneyandmarkets.com/1388/flow_of_funds_page43.pdf

7. http://images.moneyandmarkets.com/1388/flow_of_funds_page48.pdf

8. http://images.moneyandmarkets.com/1388/flow_of_funds_page51.pdf

9. http://images.moneyandmarkets.com/1388/flow_of_funds_page105.pdf

10. http://www.nytimes.com/2009/06/13/business/economy/13fed.html?_r=1&scp=1&sq=Edumund%20L.%20Andrews&st=Search

[ Source: http://news.bbc.co.uk/2/hi/business/8101154.stm ]



Page last updated at 23:41 GMT, Monday, 15 June 2009 00:41 UK



By Katie Hunt

Business reporter, BBC News



Brazil, Russia, India and China, collectively known as the Bric countries, are holding their first formal summit in the Russian city of Yekaterinburg.



On the agenda is the role of the dollar and its status as the world's dominant currency.



China, Russia and, to a lesser extent, Brazil have expressed a desire to see the dollar one day replaced as the world's main trading currency.



And fears that these big holders of dollar assets may be looking to switch from the US currency have unsettled financial markets and US politicians.



"Although China's call for a new reserve currency is premature, it is legitimate," says Shujie Yao, a professor of economics at the School of Contemporary Chinese Studies at the University of Nottingham.



Stir



Chinese and Russian officials have questioned the dollar's status as the dominant currency on several occasions in recent months.



Brazil has also expressed concern although India remains less active on this front.



China's central bank governor caused a stir in March when he said the US dollar should be replaced as the world's largest reserve currency by the Special Drawing Right (SDR) - a unit of account issued by the International Monetary Fund.



And Russian President Dmitry Medvedev said at the beginning of this month that the idea of a "supranational currency" should be discussed at the Bric summit.



These concerns have in part led to a decline in the dollar against other major currencies in recent months and sent jitters through the market for US government debt.



'Substantial impact'



As two of the world's biggest holders of US dollar assets, China and Russia fear that the steps that the US is taking to boost its economy and help it recover from the financial crisis could undermine the value of the US currency.



"If you own trillions of dollar assets, the last thing you want is any more dollars being printed," says Simon Derrick, currency strategist at Bank of New York Mellon.



"A 10% fall in the dollar has, in theory, a substantial impact on China's spending power," he adds.



China and Russia have already taken some small steps to diversify their currency reserves away from the dollar:

China has made arrangements with six countries worth 650bn yuan ($95bn) that allow trade to be conducted in renminbi rather than dollars




China and Russia have said they will buy bonds to be issued by the IMF




Data released on Monday showed that both China and Russia had trimmed their holdings of US government bonds in April.

But analysts say the Bric countries are unlikely to mount a real challenge to the dollar's supremacy.



Any concrete suggestion of a wholesale switch away from the dollar would dramatically undermine the value of their own reserves.



"They are expressing their frustration but there's little they can really do about it. They can only take steps on the margin," says Jan Randolph, head of sovereign risk analysis at IHS Global Insight.



Charm offensive



These developments have not gone unnoticed in the US.



A weaker dollar and rising government bond yields can make it more expensive for the US government to borrow money.



This ultimately could lead to problems in financing the measures taken to help the US economy recover.



To address these concerns, US Treasury Secretary Timothy Geithner visited China at the end of May to give assurance over the safety of dollar assets, and met with his Russian counterpart over the weekend at the sidelines of the G8 finance ministers meeting.



His charm offensive appears to be working, at least for now.



The dollar rose on Monday after Russian Finance Minister Alexei Kudrin said it would not be replaced as the world's reserve currency in the near future and China's vice foreign minister Ha Yafei has assured the US that "nobody is talking about dumping the US dollar".



China and Russia may now have decided that it is self-defeating to make comments that undermine the value of the dollar and thus the value of their own reserves, says Mr Derrick at Bank of New York Mellon.



But this does little to alter the basic unease Russia and China feel over their vast holdings of dollars.



"While officials may feel that it is appropriate to provide verbal support for the dollar, it will ultimately be their actions that matter," says Mr Derrick.

[ Source: http://www.bloomberg.com/apps/news?pid=20601087&sid=aWgZ7EeTvFbk ]



By Lyubov Pronina and Alex Nicholson



June 16 (Bloomberg) -- Brazil, Russia, India and China are considering buying each other’s bonds and swapping currencies to lessen dependence on the U.S. dollar, Russian President Dmitry Medvedev’s top economic adviser said.



The leaders of the so-called BRIC countries will discuss measures to promote regional currencies when they meet later today, Arkady Dvorkovich told reporters in the Ural Mountains city of Yekaterinburg before the first BRIC summit.



“There will be talk about increasing the share of mutual trade in national currencies, possibly placing part of reserves in the financial instruments of partner countries,” Dvorkovich said.



Medvedev is hosting back-to-back summits of developing economies in Yekaterinburg as he seeks to lessen the world economy’s dependence on the U.S. dollar. Medvedev will hold talks later today with Chinese President Hu Jintao, Indian Prime Minister Manmohan Singh and Brazilian President Luiz Inacio Lula da Silva.



Medvedev and Hu earlier today attended a summit of the Shanghai Cooperation Organization, which also includes the four former Soviet republics of Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan.



The Russian leader reiterated his intention to push for the creation of a “supranational currency” to challenge the U.S. dollar and encouraged China and the other Shanghai group members to use each other’s currencies for trade.



Currency System



“There can be no successful global currency system if the financial instruments that are used are denominated in only one currency,” Medvedev said. “Today this is the case and the currency is the dollar.”



The meetings “show a very strong desire of developing countries to play a bigger role in world finance, especially given the growing insecurity related to the current crisis,” said Masha Lipman, a political analyst at the Carnegie Center in Moscow, in an interview with Bloomberg Television today.



Russian Finance Minister Alexei Kudrin said on June 13 that the dollar’s “fundamental indicators” are “fine” and that he was confident in the currency’s strength. A week earlier, Medvedev said the dollar isn’t in “a spectacular position” and questioned its future as a global reserve currency.



Dvorkovich said the positions of Medvedev and Kudrin aren’t contradictory and that the Russian government is united on its dollar policy.



“In the long term, it is beneficial for all and all agree that the world needs a few strong currencies,” Dvorkovich said. “It cannot happen quickly.”



To contact the reporter on this story: Lyubov Pronina in Yekaterinburg at lpronina@bloomberg.net; Alex Nicholson in Moscow at



Last Updated: June 16, 2009 06:17 EDT

[ Source: http://www.mcclatchydc.com/227/story/56241.html ]



WASHINGTON — If you think the housing slump can't get much worse, Martin Feldstein thinks that both home prices and the broader economy can — and very likely will — get a whole lot worse.



The Harvard University professor and former chief economic adviser to Ronald Reagan isn't part of the crowd that continually forecasts doom. For two decades, he's headed the National Bureau of Economic Research, which officially determines when U.S. recessions begin and end.



So when he spoke on Monday night at the annual dinner of the National Economists Club, a gathering of like-minded wonks, Feldstein's grim calculations were noteworthy.



"There are now 12 million homes in the United States with a loan-to-value ratio greater than 100 percent. That's one mortgage in four. The aggregate amount of that is some $2 trillion," said Feldstein. "If you look at the median (midpoint) loan-to-value ratio in that 12 million group of underwater mortgages — mortgages with negative equity — the median loan-to-value ratio is 120 percent."



That means about 25 percent of all U.S. mortgages are exceed the value of the homes the mortgages are financing. In the case of half the homes that are underwater, homeowners are paying a mortgage that's now 20 percent higher than the value of the home.



That's bad — but it's likely to get worse.



A recent report by First American Core Logic, a real-estate data firm in Santa Ana, Calif., estimated that as of Sept. 30, 7.5 million mortgages, or 18 percent of all properties with a mortgage, had negative equity. The group thinks there are another 2.1 million mortgages that are within 5 percent of going underwater.



Together, these two categories account for 23 percent of all properties with a mortgage. Nevada led all states with 48 percent of homes with negative equity. Florida and Arizona each had 29 percent of homes with underwater mortgages, while 27 percent of mortgages in California were upside-down, the group said.



If home prices fall another 10 to 15 percent, as measured by the Case/Shiller Home Price Index, then four out of every 10 mortgages in the U.S. could be underwater, Feldstein said.



"At those levels, it's hard to see how many people are going to be willing to keep up with their mortgages," Feldstein said.



The implications for many homeowners are staggering. Before the recent housing boom of 2000 to 2006, homes increased in value at a historical annual rate of about 2.3 percent when adjusted for inflation.



That means that for homeowners who owe 35 percent more than their homes' value, it would take, at historical averages, about 15 years just to break even on their home investment. They won't build equity. It would be a huge incentive for millions to hand the keys back to the lender and seek cheaper housing.



Not all real estate experts buy Feldstein's stark numbers.



"That's the highest percentage I've heard from anybody, by quite a bit," said Rick Sharga, senior vice president for Realtytrac, an Irvine, Calif., company that publishes foreclosure data.



More conservative forecasts, though still dismal, point to a smaller drop in home prices of 5 percent to 7 percent, he said.



Added Jay Brinkmann, chief economist for the Mortgage Bankers Association in the nation's capital, "If you generalize the numbers too far, I think it leads to some incorrect conclusions."



The Case/Shiller Index is driven by home sales that have taken place. It doesn't reflect the stability in older, established neighborhoods, Brinkmann said. The vacant and for-sale rates nationwide for homes built before 2000 — that is, pre-boom — is just 2 percent. The delinquency and foreclosure problems are concentrated mostly in a handful of states, such as California, Florida, Arizona and Nevada, which had overbuilding and weak lending standards.



"Those states have about 25 percent of the mortgages and 50 percent of the foreclosure starts" in the latest association survey, Brinkmann said. Nationwide, 6.4 percent of all mortgages were delinquent through June, but the number of delinquencies and foreclosure starts are breaking records every quarter, the most recent MBA survey said.



Brinkmann's own rough guess is that somewhere between 6 million and 8 million mortgages are underwater, still a very high number. He doesn't see the national outlook getting better any time soon, framing his estimate of when that happens in the form of a question: "When does the influence of these massive declines in California and Florida go away?"



Realtytrac's forecast isn't any brighter.



"The best-case scenario in terms of the real estate market is we probably bottom out between mid-year and the end of 2009. And that's the best case from where we're sitting," Sharga said. "The only reason it could happen that soon is because of how rapidly and how severe the downturn has been in the housing market."



A lot would have to go right to reach that best-case scenario. Government and industry efforts would have to step up efforts to forgive or make up the difference between the value of the mortgage and the value of the home.



The final batch of subprime mortgages scheduled to reset to a higher interest rate will have done so by the end of the first quarter of 2009.



In a rare bit of relief for one segment of the housing market, the interest rates that determine the monthly payments for some adjustable-rate mortgages are falling.



Sharga said, however, that the next problem is the $60 billion of adjustable-rate Alt-A mortgages, which fall between subprime and prime loans. Millions of these loans are scheduled to reset next year to higher interest rates. That could bring monthly mortgage payment increases of $1,000 or more if the loans aren't modified or refinanced.



All this is happening amid what now clearly is a deepening recession, with the highest job losses and deepest drops in consumer spending in decades. The Labor Department reported on Thursday that weekly jobless claims jumped to 542,000, a 16-year high, last week. That suggests a fast-deepening recession.



The White House Thursday acknowledged for the first time that it now supports efforts in Congress to extend unemployment benefits for longer periods to the millions of Americans who can't find work in the downturn.



Consumer spending drives about two-thirds of U.S. economic activity, and as unemployment mounts and consumers retrench, that leads to even more unemployment, mortgage delinquencies and foreclosures.



"The problem now is what will be happening with jobs," Brinkmann said.

[ Source: http://www.bloomberg.com/apps/news?pid=20601103&sid=aHEpXU3Pg_oU ]



By Dan Levy



June 11 (Bloomberg) -- U.S. foreclosure filings surpassed 300,000 for the third straight month in May and may hit a record 1.8 million by the first half of the year, RealtyTrac Inc. said.



A total of 321,480 properties received a default or auction notice or were repossessed last month, up 18 percent from a year earlier, the Irvine, California-based seller of default data said today in a statement. One in 398 U.S. households received a filing last month.



“The foreclosure bucket is filling faster than it’s emptying,” Jay Brinkmann, chief economist of the Washington- based Mortgage Bankers Association, said in an interview. “It will continue through next quarter at least.”



Job losses and falling property prices are delaying the housing recovery as more homeowners are unable to pay the mortgage or have difficulty selling or refinancing. The unemployment rate climbed to 9.4 percent in May, the highest since 1983, the Labor Department said last week. Prices in 20 U.S. cities dropped 18.7 percent in March, according to the S&P/Case-Shiller home-price index.



More home loans originated in 2005 or before are likely to default as unemployment climbs, said Rick Sharga, executive vice president for marketing at RealtyTrac.



A record 1.37 percent of all loans entered the foreclosure process in the first quarter, with 29 percent tied to borrowers with prime, fixed-rate mortgages, the MBA reported May 28. Homes in foreclosure totaled 3.85 percent of all loans in the quarter, up from 2.47 percent a year earlier, MBA said.



Balance Sheets Worsen



“The numbers are getting bigger and that’s what is bothering me,” said Patrick Newport, economist at IHS Global Insight in Lexington, Massachusetts. “You have banks holding these toxic loans, which means bank balance sheets are in even worse shape with the increase in delinquencies.”



Additional U.S. home foreclosures will probably total 6.4 million by mid-2011, and inventories of foreclosed homes awaiting sale will probably peak in mid-2010 at about 2 million properties, JPMorgan Chase & Co. analysts led by John Sim wrote in a June 5 report. U.S. prices will likely drop 39 percent on average, they said.



The May total was the third-highest in RealtyTrac records dating to January 2005.



Nevada had the highest foreclosure rate, one in every 64 households, more than six times the national average. California ranked second at one in 144 households.



Florida had the third-highest rate at one in 148 households. Arizona ranked fourth with one in 158 and Utah was fifth with one filing per 316 households, RealtyTrac said.



Other states among the top 10 highest rates were Michigan, Georgia, Colorado, Idaho and Ohio.



California Leads



California had the highest total number of filings at 92,249, 23 percent more than a year earlier. Scheduled auctions rose 18 percent from the previous month while bank seizures fell 1 percent and defaults fell 18 percent.



Florida had the second-highest total with 58,931 filings, up 50 percent from May 2008. Nevada was third with 17,157 filings, up 83 percent, as bank seizures there rose 23 percent from the previous month.



Arizona, Michigan, Ohio, Illinois, Georgia, Texas and Virginia rounded out the top 10, which accounted for 77 percent of total U.S. filings, according to RealtyTrac.



New Jersey had the 24th highest rate, one in 794 households, and 4,408 filings. Connecticut ranked 33rd, with one in every 1,301 households in some stage of default. The state had 1,106 filings. New York was 37th, with one in 1,646 households getting a filing for a total of 4,825.



Vegas Still Climbing



Las Vegas had the highest foreclosure rate among metropolitan areas with a population 200,000 or more. One in 54 households got a notice, up 78 percent from a year earlier and up 4 percent from the previous month.



California had six cities among the top 10. Stockton, Modesto, Riverside-San Bernardino and Merced ranked second through fifth, respectively, Bakersfield was seventh and Vallejo-Fairfield was ninth.



Florida had three cities in the top 10: Cape Coral-Fort Myers ranked sixth, Orlando-Kissimmee was eighth and Miami-Fort Lauderdale-Pompano Beach was tenth, according to RealtyTrac, which collects data from more than 2,200 counties representing 90 percent of the U.S. population.



To contact the reporter on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net



Last Updated: June 11, 2009 00:00 EDT

[ Source: http://www.msnbc.msn.com/id/31193659/ns/business-us_business/ ]



First-quarter reports show bad loans increasing at 60% of banks



By Bill Dedman

Investigative reporter

msnbc.com

updated 11:46 a.m. CT, Thurs., June 11, 2009



Bad loans on real estate continue to push harder on the nation's banks.



At the end of the first quarter, six out of every 10 banks in the U.S. were less well prepared to withstand their potential loan losses than they had been at the end of 2008, according to a new analysis by msnbc.com and the Investigative Reporting Workshop at American University in Washington. Overall, bad loans rose another 22 percent in the quarter as the recession continued.



Msnbc.com is publishing information on the nation's 400 largest banks as well as all banks with high ratios of troubled loans to assets. Information on the financial health of more than 8,000 banks nationwide is available at the updated BankTracker site published by the American University group.



The analysis relies on information reported through March 31 to the Federal Deposit Insurance Corp., calculating each bank's troubled asset ratio, which compares troubled loans against the bank's capital and loan loss reserves. A similar ratio, known as a Texas Ratio, is commonly used by bank analysts as a snapshot of a bank's financial health, though it can't capture all the nuances of a bank's condition.



Although much attention has been focused on surprising profits at U.S. banks in the first quarter of 2009, under the surface lurks an industry still suffering from the recession. If you set aside the 10 largest banks, the rest of the industry lost money in the quarter, primarily because of very large losses at a few banks.



While the 10 largest banks reported $10.2 billion in earnings for the quarter, the remaining 8,245 banks together lost $2.6 billion, according to the analysis.



One in five banks lost money in the quarter, and several lost big, weighing down the rest.



Four large banks account for more than $5 billion in losses. Huntington National Bank of Columbus, Ohio, lost $2.46 billion. FIA Card Services of Wilmington, Del., lost $1.47 billion. SunTrust Bank of Atlanta lost $783 million. Sovereign Bank of Wyomissing, Pa., lost $764 million.



What's the trend in bad loans?

Continuing the trend from 2008, there was a significant deterioration in the first quarter in the ability of banks to withstand potential losses from troubled loans.



If a troubled asset ratio of 100 is a sign of severe stress, then an additional 93 banks moved past that level in the quarter, for a total of 237. Still, that's only 3 percent of the nation's banks.



Some analysts have said that any ratio over 20 percent is an early warning sign. An additional 421 banks moved past that level, for a total of 2,692. That's 33 percent of the nation's banks.



While the troubled asset ratio is not a predictor of bank failure, 29 of the 37 banks that have failed so far this year had ratios of greater than 100 percent, reported Wendell Cochran, senior editor of the reporting project at American University.



Most banks still have relatively low levels of troubled loans. But there was a worsening of the median troubled asset ratio for all banks, rising to 11.7 at the end of the quarter, up from 9.8 at year end 2008, and 4.9 at year-end 2007, when only one-quarter of the nation's metro areas were in recession.



The reports in most cases do not include the billions in federal money injected onto the balance sheets of bank holding companies in the form of so-called TARP funds. Although the public was told by members of Congress that one of the purposes of the TARP program was to increase lending, in nearly all cases that money has stayed with the bank holding companies as a cushion against hard times, and has not been passed on to their individual banks where it might be used to make loans. In fact, the total of loans outstanding declined again in the quarter as the recession continued.



The American Bankers Association opposes the sharing of ratios like these with the public, and said in a statement that the vast majority of the nation's banks "has been and continues to be well capitalized." (For a discussion of bankers' views on such ratios, see msnbc.com's previous report for data from the fourth quarter of 2008.)



The total of troubled assets rose to $285.2 billion at the end of the quarter. At the end of 2008, for the same banks, it was $233.7 billion. That's an increase of 22 percent in the quarter. At the end of the year 2007, it was $94 billion.



Out of 8,228 banks for which we have data for the latest two quarters, 4,918 showed a worsening ratio, or 59.8 percent. Only 2,776 banks, or 33.7 percent, showed improvement during the first quarter. And 534 banks, or 6.5 percent, kept the same ratio.



More bad loans at big banks

Most of the largest banks showed increasing burdens of bad loans. Out of the largest 100 banks, 86 showed declining ability to withstand losses. Only 11 improved. One maintained the same ratio. (Two did not report data that could be compared.)



The median troubled asset ratio for the 100 largest banks was 19.6 at the end of the quarter, up again from 16.7 at year end 2008, and 8.6 at year-end 2007.



The largest bank with a ratio over 100 was BankUnited FSB of Coral Gables, Fla., which was closed by its regulator on May 21. The bank ended the first quarter with a troubled asset ratio at a startling 3,750. It reported troubled assets of $1.6 billion, and capital and loan loss reserves of only $44 million. It had been the 96th-largest bank in the U.S. at the end of the quarter, by assets.



The highest ratio of an existing bank in the largest 100 banks is at AmTrust Bank of Cleveland, which showed further deterioration. The ratio had been 130 at year end, or 30 percent more troubled loans than capital and reserves. It weakened to a ratio of 174 at the end of the first quarter. In a previous statement, AmTrust said it was attempting to raise more capital. Though based in Ohio, the bank suffered from construction loans it made in South Florida.



Limitations of the ratio

The ratio was devised by Cochran, senior editor of the Investigative Reporting Workshop. A former business reporter, Cochran may have been the first journalist to create this measure of bank health. He did that while covering banking for the Des Moines Register in the early 1980s. Cochran now teaches journalism at American University.



Others do similar calculations. The most widely used is the so-called Texas Ratio, created in the 1980s by a banking consultant.



The troubled asset ratio may not accurately reflect a bank's standing today. As with any annual or quarterly report, there's a lag time before the numbers are reported, and the figures don't reflect changes since March 31.



The ratio does not include the value of non-loan assets that have caused so much trouble in the past year, particularly for some larger banks that moved away from traditional commercial banking. The ratio does not reflect mortgage-backed securities, collateralized debt obligations, etc. In this way, the ratio may underestimate the real depth of problems at some banks.



And no ratio can get at the detailed information — such as the individual loan files, quality of management, and potential for raising other capital — that a regulator will use to evaluate a bank's safety and soundness.



Profits still 'a mixed bag'

While the largest banks as a group showed profits in the first quarter, much of that came from securities trades, not from banking, the FDIC said in its quarterly commentary.



Setting aside the 10 largest banks, the loss for the quarter was $2.6 billion. For the same banks for all of 2008, the profit was just $229 million, compared with a profit of $56.6 billion back in 2007.



Overall, 22 percent of banks lost money in the quarter, essentially unchanged from 23 percent in 2008. In 2007, only 11 percent were unprofitable.



"I think the next quarter is still going to be a mixed bag," said Karen Thomas, vice president of the Independent Community Bankers of America. "Most banks are well capitalized. Not all of them are going to be able to work through their challenges, but the vast majority of them will."



Depositors are protected

Even when a bank does fail, no depositor has lost a dime in insured deposits since the FDIC was created in 1934.



The protection has its limits. The basic limit had been $100,000 per depositor per bank, but was temporarily increased in October to $250,000. The $250,000 limit was recently extended through Dec. 31, 2013. The FDIC has more detailed information and a calculator to help you determine your level of protection.



If your deposits are under the FDIC limits, you're protected even if your bank should fail. If your deposits exceed those limits, the best protection is to move deposits now into smaller accounts at more than one FDIC-insured bank.



© 2009 msnbc.com

[ Source: http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5516536/US-cities-may-have-to-be-bulldozed-in-order-to-survive.html ]



Dozens of US cities may have entire neighbourhoods bulldozed as part of drastic "shrink to survive" proposals being considered by the Obama administration to tackle economic decline.



By Tom Leonard in Flint, Michigan

Published: 6:30PM BST 12 Jun 2009



The government looking at expanding a pioneering scheme in Flint, one of the poorest US cities, which involves razing entire districts and returning the land to nature.



Local politicians believe the city must contract by as much as 40 per cent, concentrating the dwindling population and local services into a more viable area.



The radical experiment is the brainchild of Dan Kildee, treasurer of Genesee County, which includes Flint.



Having outlined his strategy to Barack Obama during the election campaign, Mr Kildee has now been approached by the US government and a group of charities who want him to apply what he has learnt to the rest of the country.



Mr Kildee said he will concentrate on 50 cities, identified in a recent study by the Brookings Institution, an influential Washington think-tank, as potentially needing to shrink substantially to cope with their declining fortunes.



Most are former industrial cities in the "rust belt" of America's Mid-West and North East. They include Detroit, Philadelphia, Pittsburgh, Baltimore and Memphis.



In Detroit, shattered by the woes of the US car industry, there are already plans to split it into a collection of small urban centres separated from each other by countryside.



"The real question is not whether these cities shrink – we're all shrinking – but whether we let it happen in a destructive or sustainable way," said Mr Kildee. "Decline is a fact of life in Flint. Resisting it is like resisting gravity."



Karina Pallagst, director of the Shrinking Cities in a Global Perspective programme at the University of California, Berkeley, said there was "both a cultural and political taboo" about admitting decline in America.



"Places like Flint have hit rock bottom. They're at the point where it's better to start knocking a lot of buildings down," she said.



Flint, sixty miles north of Detroit, was the original home of General Motors. The car giant once employed 79,000 local people but that figure has shrunk to around 8,000.



Unemployment is now approaching 20 per cent and the total population has almost halved to 110,000.



The exodus – particularly of young people – coupled with the consequent collapse in property prices, has left street after street in sections of the city almost entirely abandoned.



In the city centre, the once grand Durant Hotel – named after William Durant, GM's founder – is a symbol of the city's decline, said Mr Kildee. The large building has been empty since 1973, roughly when Flint's decline began.



Regarded as a model city in the motor industry's boom years, Flint may once again be emulated, though for very different reasons.



But Mr Kildee, who has lived there nearly all his life, said he had first to overcome a deeply ingrained American cultural mindset that "big is good" and that cities should sprawl – Flint covers 34 square miles.



He said: "The obsession with growth is sadly a very American thing. Across the US, there's an assumption that all development is good, that if communities are growing they are successful. If they're shrinking, they're failing."



But some Flint dustcarts are collecting just one rubbish bag a week, roads are decaying, police are very understaffed and there were simply too few people to pay for services, he said.



If the city didn't downsize it will eventually go bankrupt, he added.



Flint's recovery efforts have been helped by a new state law passed a few years ago which allowed local governments to buy up empty properties very cheaply.



They could then knock them down or sell them on to owners who will occupy them. The city wants to specialise in health and education services, both areas which cannot easily be relocated abroad.



The local authority has restored the city's attractive but formerly deserted centre but has pulled down 1,100 abandoned homes in outlying areas.



Mr Kildee estimated another 3,000 needed to be demolished, although the city boundaries will remain the same.



Already, some streets peter out into woods or meadows, no trace remaining of the homes that once stood there.



Choosing which areas to knock down will be delicate but many of them were already obvious, he said.



The city is buying up houses in more affluent areas to offer people in neighbourhoods it wants to demolish. Nobody will be forced to move, said Mr Kildee.



"Much of the land will be given back to nature. People will enjoy living near a forest or meadow," he said.



Mr Kildee acknowledged that some fellow Americans considered his solution "defeatist" but he insisted it was "no more defeatist than pruning an overgrown tree so it can bear fruit again".