” Look I’m Only Trying To Help Yas… An APR of 2,500,000% Is A Good Deal “

Look for crime and all sorts black market action to take place over the next few years

Tens of thousands of low income households could be forced to use illegal loan sharks because of the shortage of lenders in the sub-prime market, according to a new report.

The New Local Government Network has warned that an extra 35,000 borrowers will turn to loan sharks in the recession, paying interest rates of up to 2,500,000 per cent.

The think tank found that borrowers in Stoke-on-Trent, Lincoln, Manchester and Gateshead were most likely to turn to unlicensed lenders.

Figures from the Department for Communities and Local Government show that more than 165,000 of the poorest households already use unregulated money lenders.

Borrowers who are forced to turn to loan sharks are also at risk of intimidation and violance, according to the report, which cited the case of loan shark who was convicted earlier this year of raping a customer who was unable to repay her loan on time.

Chris Leslie, of the New Local Goverment Network, said: “The pernicious trend of illegal unsecured lending at extremely high rates of interest is making a comeback. The diminished availability of sub-prime loans is creating conditions where a sizable number of people have little option but to borrow from these illegal sources.”

High street banks and building societies have axed riskier lending in the last year and foreign lenders who targeted low income borrowers are now closed to new applications.

The report pointed to the growth of Provident Financial, one of the largest door-step lenders, as evidence that low income households are turning to alternative lenders for credit.

Provident has seen total lending rise 12.8 per cent in the last two years and has seen a marked increase in applications, leading to the rejection of 60 per cent of applications last year, from 55 per cent in 2007. It charges a typically annual interest rate of 254 per cent on a £300 loan.

Tom Howard, from the Consumers Credit Counselling Service, the debt charity, said: “The shortage of players in the sub-prime market is hitting borrowers who are most at risk.

“It is all too easy for these consumers to fall into a spiral of debt, which is not helped by the astronomical interest rates charged by these lenders.”

The report has called for the Government, credit unions and local authorities to take more action to provide safer and more affordable loans.

Crisis Loans, a source of emergency funds provided by the Government through the Job Centre network, has seen the number of applications rise from 1.4 million in 2007 to 2.1 million last year. However, it was forced to turn down a record 596,000 applications in 2008, up from 316,000 the year before.

Separately, the Office of Fair Trading has warned debt management businesses to stop making misleading calls to potential customers. Six debt management companies and four cold-calling businesses have told that they could face formal enforcement action if complaints continue.

Customers have been told that debt management businesses were working with the Government to wipe out debt, were not told about fees or were given inaccurate or misleading information.

Teresa Perchard, director of public policy for Citizens Advice, said: “This is absolutely the kind of prompt and decisive action needed to tackle rogues taking advantage of the downturn.

“These cold calls are intrusive and disconcerting and could lead consumers to believe the company has personal information about them when they do not.”

Wow, China controls 95% of the of these rare earth materials

Japan’s increasingly frantic efforts to lead the world in green technology have put it on a collision course with the ambitions of China and dragged both government and industry into the murky realm of large-scale mineral smuggling.

The robust international trade in illegally mined, quota-busting rare-earth metals highlights China’s near monopoly on the raw materials for environmental technology – a 95 per cent dominance of world supply that is likely to become more widely noticed as China tightens its grip.

The weight and magnetic properties of rare-earth metals have made them important for wind turbines, essential to hybrid cars, and indispensable if the world ever hopes to covert to fully electric vehicles.

One mining company president told The Times that governments that had promised a way out of economic turmoil with bold schemes to subsidise green cars, solar panels and other environmental technology had “spoken without understanding the upstream of modern products”.

Don Burbar, the chief executive of Avalon Rare Metals, said: “The crux of the matter is that there are now a lot of technologies that can’t work without rare earths, and China is currently in effective control of the global supply. China has positioned itself to retain control, and meanwhile politicians around the world do not appreciate how the supply side of green technology works.”

In Japan, the world’s biggest importer of rare-earth metals, more than 10,000 tonnes per year – about a fifth of the country’s total annual consumption – are thought to enter the country through a thriving black import network without which Japan would already be in a severe supply crisis, a senior government official said.

China has been lowering its export quotas for rare-earth metals by about 6 per cent annually since the start of the decade, with Japan expected to be allotted only 38,000 tonnes in 2009. Toyota and Honda alone will consume about that quantity and experts in Australia have predicted a wider global supply crunch within three years as demand surges beyond existing refinery and extraction capacity.

But rare-earth specialists at two of Japan’s largest trading houses said that loopholes and smuggling substantially raise the quantities of rare metals that enter Japan each year. Kazunori Fukuda, deputy director of the nonferrous metals division at the Ministry of Economy, Trade and Industry, said: “If the Chinese export quota limits were the reality of what comes into Japan each year, we would be even more worried than we already are. All green technology depends on rare-earth metals and all global trade in rare earth depends on China.”

Ginya Adachi, from the Japanese Rare Earth Association, said that China’s dominance of rare earths would serve the developed world with a rude shock about global trade: Japan, America and Europe must now realise that some markets are not real, but political. But he added: “The Chinese Government wants full control but it doesn’t have it. It is not in control of the rare-earths market in the same way that Opec is in control of oil. Local miners will sell even if the government tries to control the price or the quotas.”

The Japanese Government has begun looking for alternative supply sources in Vietnam and elsewhere; rare earths are not as rare as the name suggests. There are potential supplies around the world, but prospective miners in Australia and the US are experiencing financing difficulties and as soon as new facilities have emerged in Asia and elsewhere, Chinese companies have quickly become majority investors.

Lets fire everyone and cut off all capital expenditures in the industry and see where energy prices go.

More than 10,000 jobs at Royal Dutch Shell are under threat as Peter Voser, the oil giant’s new chief executive, announced a radical shake-up of the company.

In a series of moves designed to slash billions of dollars from Shell’s cost base and sharpen its focus in an era of low oil prices, the company said it was merging three divisions into two, creating a new one charged with project management and trimming the number of executive directors on its board from five to three.

“Organisationally, we are too complex, and our culture is still too consensus-oriented. Our costs are simply too high,” Mr Voser told staff in an e-mail before briefing 200 senior executives on the plans at a special meeting in Berlin.

While Shell refused to specify how many jobs would be lost in the reshuffle, analysts estimate it will be between 5 per cent and 10 per cent of the company’s 102,000 staff. Most of the cuts are expected in middle and senior management roles. About 24,000 Shell staff who work across the divisions that are due to be merged will be directly affected, although only some of these positions will be eliminated, a spokesman said.

The changes will initially affect Shell’s 200 most senior executives with some reports yesterday suggesting that more than 30 per cent of them would be dismissed. Hundreds of jobs in the UK, where Shell employs 9,000 staff, are also thought to be under threat.

The first casualty of the reorganisation came on Monday with the abrupt resignation of Linda Cook, Shell’s former head of gas and power and a 29-year veteran of the company.

Her division will be folded in with two other businesses that had previously been run as separate units: exploration and production – Shell’s core oil production business and the engine of its profits – and oil sands. Under the new structure, which places natural gas at the centre of Shell’s business alongside crude oil, these will be run together along regional lines: “Upstream Americas” and “Upstream International”.

In a drive to improve Shell’s patchy record delivering important projects on time and to budget, a new business – “Projects & Technology” – will combine all of Shell’s activities in these areas.

Shell is also reducing the size of its corporate affairs division, which is headquartered in The Hague, where it employs 2,000 people.

Mr Voser takes over from Jeroen van der Veer on July 1, when the changes will also be implemented, although the bulk of job cuts are not expected before autumn.

“These changes will increase our focus, accelerate our plans to reduce complexity, corporate overheads and costs, and result in faster decision-making and delivery,” Mr Voser said.

Wamu credit loans could see defaults as high as 24%

By Henny Sender and Saskia Scholtes in New York

Published: May 27 2009 18:46 | Last updated: May 27 2009 22:01

Jamie Dimon, JPMorgan Chase chief executive, warned on Wednesday that loss rates on the credit card loans of Washington Mutual, the troubled bank acquired last year by JPMorgan, could climb to 24 per cent by the year end.

In the past, credit card loss rates have tracked the unemployment rate but that relationship has been breaking down for more troubled credit card portfolios, such as the $25.9bn in WaMu credit card loans.

At the end of the first quarter, 12.63 per cent of the WaMu credit card loans were deemed uncollectable by JPMorgan. The bank estimates that figure could reach 18 to 24 per cent by the end of 2009, depending on economic conditions.

Describing credit cards as JPMorgan’s most challenged business, Mr Dimon said loss rates for the company’s larger $150bn portfolio of Chase credit cards could reach 9 per cent in the third quarter and as much as 10.5 per cent by the end of the year, depending on housing and unemployment trends. That compares with first-quarter charge-off rates of 6.86 per cent on the Chase card portfolio.

In parts of the US that are particularly distressed – such as the states of Arizona, California, Florida, Nevada and Virginia – net charge-offs for the Chase credit card loans already amounted to 9.9 per cent of the total at the end of the first quarter, up from 5.5 per cent in the first quarter of 2008, Mr Dimon said.

Mr Dimon said he believed that a new law restricting higher interest rates on delinquent credit card debt for the first 60 days could make credit cards more expensive in the future.

Banks are repricing credit cards and cutting credit lines before the new rules take effect, pushing borrowers into distress in some instances, according to industry executives.

Turning to other subjects, Mr Dimon said it was “a given that commercial real estate will get worse”. However, he said JPMorgan had been cautious about making loans in the sector and was comparatively less exposed to the problem.

Mr Dimon gave an upbeat view of the bank’s earnings power, noting that reduced leverage would be more than offset by increased spreads in the markets, giving JPMorgan the ability to aspire to an 18 to 20 per cent return on equity.

“If we are lucky we will start paying a dividend again late this year,” he said.

Mr Dimon reiterated his desire to repay troubled asset relief programme funds as soon as regulators reveal the ground rules for repayment.

The government has pledged to inform the banks of the conditions by June 8.

Mr Dimon said the reasons for not allowing banks to repay have virtually disappeared, noting that the 19 large banks that underwent government stress tests all passed. If the strong repay, they “won’t jeopardise the weaker,” he said.

The IEA’s Report On Energy…

How’s your TBT ?

By Jody Shenn

May 27 (Bloomberg) — Yields on Fannie Mae and Freddie Mac mortgage bonds rose for a fourth day, after exceeding for the first time yesterday their levels before the Federal Reserve announced it would expand purchases to drive down interest rates on new loans.

Yields on Washington-based Fannie Mae’s current-coupon 30- year fixed-rate mortgage bonds climbed to 4.55 percent as of 3:15 p.m. in New York, the highest since Dec. 5 and up from 3.94 percent on May 20, data compiled by Bloomberg show.

Rising mortgage-bond yields, driven higher in part by climbing Treasury rates, mean the Fed now “faces a challenge to its ability to sustain low mortgage rates,” according to Jeffrey Rosenberg at Bank of America Corp. The central bank, seeking to use lower home-loan rates to stem the housing slump and bolster consumers, said March 18 it would increase its planned purchases of so-called agency mortgage bonds by $750 billion, to as much as $1.25 trillion, and start buying government notes.

“Market participants may be asking themselves the same question as Scorpio in ‘Dirty Harry’: ‘Do I feel lucky?’ ” Rosenberg, the bank’s head of credit strategy research in New York, wrote in a report yesterday, referring to a character in the 1971 Clint Eastwood film who may be shot.

Crashing U.S. home prices have fueled the first global recession since World War II. The Fed, led by Chairman Ben S. Bernanke, may need to again adjust its mortgage-bond buying, after initially announcing the program in November, or boost its purchases of Treasuries, Rosenberg said. Home prices in 20 major metropolitan areas fell more than forecast in March, declining 18.7 percent from a year earlier, according to an S&P/Case Shiller index released yesterday.

‘Extension Pressures’

As rising Treasury yields sparked speculation that higher mortgage rates would extend the average lives of home-loan bonds by reducing the pace of refinancing, holders of the bonds, lenders and servicers began seeking to shorten the durations of holdings to make up for the effect, according to Mahesh Swaminathan, a mortgage-bond analyst in New York at Credit Suisse Group.

Their actions last week started causing interest-rate swap spreads to widen, as they sought to use those contracts to lessen their durations, “a canary in the coal mine pointing to the extension pressures building up,” Swaminathan said in a telephone interview.

Today, they drove mortgage and government bonds lower, with the Treasury market, which “started the process, now sort of being taken for a ride,” exacerbating the situation, he said. Yields on the Fannie Mae mortgage bonds climbed from 4.26 percent yesterday.

Good-Credit Applicants

A good-credit borrower who could have gotten a 4.625- percent 30-year mortgage on May 22 and a 4.875-percent loan yesterday will probably be offered a rate of 5.25 percent tomorrow, according to Grant Stern, the owner of Morningside Mortgage Corp., a brokerage in Miami Beach, Florida. Today, one lender he works with increased its pricing four times, he said.

“The last two months have been quite abnormal” as mortgage rates generally held in a range between 4.5 percent and 4.75 percent even while Treasury yields began climbing, he said.

The average rate on a typical 30-year fixed mortgage was 4.82 percent in the week ended May 21, according to a survey by McLean, Virginia-based Freddie Mac. Rates are down from 6.46 percent in late October, and up from a record low of 4.78 percent in the first and last weeks of April.

Yields on agency mortgage bonds are now guiding rates on almost all new U.S. home lending following the collapse of the non-agency market in 2007 and retreats by banks. The almost $5 trillion market includes securities guaranteed by government- controlled Fannie Mae and Freddie Mac and bonds of government- backed loans guaranteed by federal agency Ginnie Mae.

Effects of ‘Constraints’

“Capacity constraints” at lenders dealing with increased mortgage applications since December have caused the rates offered to borrowers to be higher in relationship to the bonds yields than in the past, according to Bank of America and Credit Suisse analysts. That suggests loan rates may not initially rise as much as yields do.

Yields on benchmark 10-year Treasuries hit 3.74 percent today, a six-month high, up from 2.54 percent on March 18, a low this month of 3.09 percent on May 14 and 3.55 percent yesterday.

Treasuries are slumping amid concern that record bond sales will overwhelm demand as U.S. bailout and stimulus spending stems deflation while adding to the nation’s debt burden, and as investors shift from the safe harbor of government notes amid climbing prices of other assets in a recession that some economists say is easing.

Stocks Get Hit

The Standard & Poor’s 500 stock index today dropped the most in two weeks, losing 1.9 percent to 893.06 at 4:05 p.m. in New York, as investors weighed the impact of higher borrowing costs on the economy. The index is up 32 percent from March 9. Today, S&P’s Supercomposite Homebuilding Index fell 2.9 percent.

The difference between yields on Fannie Mae’s current- coupon 30-year fixed-rate mortgage bonds and 10-year Treasuries had been narrowing. It was at 0.92 percentage point today, down from as high as 2.38 percentage points in March 2008, according to Bloomberg data. The Fed’s purchases drove the spread to 0.70 percentage point, the lowest since 1992, on May 22. The yield gap jumped from 0.71 percentage point yesterday.

“Many investors who felt MBS spreads were too tight thought it might be time to take chips off the table,” Credit Suisse’s Swaminathan said. “This is something we anticipated would build up” as many mortgage-bond holders who were previously wary of lightening their positions on the view the Fed buying would continue to support the market finally decided to act.

Rate Threshold

The so-called option-adjusted spread of the Fannie Mae 30- year securities to interest-rate swaps yesterday was negative 0.16 percentage point, the lowest since March 2007 and a level suggesting an investor borrowing funds at the London interbank offered rate to buy the mortgage bonds would lose money, according to Bloomberg data. That spread reached as high as 1.06 percentage points in October, and jumped to positive 0.01 percentage point today.

Mortgage servicers also were dumping home-loan securities because “once rates backed up, they needed to shed duration,” Art Frank, the head of mortgage-bond research at Deutsche Bank AG in New York, said in a telephone interview. “Today, the volume really came out because we crossed what apparently many of them thought was an important threshold” in terms of rates.

Moves by Servicers

Servicers, which handle billing and collections, have contracts whose expected lives extend when the odds of refinancing drop. Those companies’ hedging needs may wreak more havoc than in 2003, when duration-extension issues contributed to a 1.3 percentage point spike in 10-year Treasury yields in six weeks, according to a report today from Barclays Capital analysts in New York. Servicing portfolios are now “significantly bigger” amid the surge in housing debt in recent years, they wrote.

Mortgage originators today also “purged their pipelines, flooding the market with” more than $5 billion of home-loan securities by mid-afternoon, according to a note to clients from UBS AG analysts.

Lenders, which enter contracts to sell mortgage securities before extending loans in order to hedge against interest-rate changes, often sell more as rates spike and they face the likelihood that more applicants than they were expecting will seek to close on loans. The effects of this dynamic will be less than in 2003, according to Kumar Velayudham and Nicholas Strand, the Barclays analysts.

Bloomberg current-coupon indexes represent the yields for hypothetical mortgage bonds trading at roughly face value. The levels are typically based on calculations derived from yields on the two groups trading just above and below par because of the size of their coupons, into which lenders typically package new loans.

A swap rate is the fixed yield paid in return for floating- rate payments linked to short-term interest rates, through a derivative contract called a swap. Swap spreads are the difference between those yields and Treasury rates.

Why quantitative easing will not work