Friday, February 20, 2009

$3.6 Billion in Economic Stimulus To Go To Greening the US Military

by Matthew McDermott, New York, NY

US army solar panel photo

photo: US DoD

Another part of the $787 billion stimulus package is going towards green energy projects: About $20 billion in fact, including $3.6 billion for energy efficiency improvements and facility upgrades at the Department of Defense. Nathan Hodge over at Wired points out some of the US military’s genuine efforts to green, such as a planned 500MW solar thermal power plant at Fort Irwin, then poses the question of whether “defense contractors who build tanks and bombs will start rebranding themselves as green saviors?” and admits that it might be a cynical question to ask. It is, and here’s why:

Say what you like about the military in terms of the way wars are waged, the necessity or lack thereof of them, but the US military is making some genuine efforts to green their act. They may have more to do with operational strategy, energy independence and fighting effectiveness than green ethics, but the end result can be good for all of us.

Like It Or Not, Technology Often Trickles Down From Military
As the US military consumes obscene amounts of fuel , if that starts coming from truly green sources and not from petroleum or liquid coal (or faux-green sources like byproducts of factory farming ), then this is a good thing for transportation in general. If the Army develops better fuel cells for soldiers on extended patrols these will be adapted for civilian usage. If the Navy starts putting solar panels on base housing and the Army builds a massive solar power plant, then it really sends a powerful message that renewable energy is a viable technology, today.

Undoubtedly some of these projects will be gobbled up by military-industrial complex cronies, and costs inflated along the way—that’s an undeniable problem—but the green benefits of the projects also can’t be denied and probably outweigh any misplaced marketing as ‘green saviors’.

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Stanford Lured Clients With ‘No Worry’ Promise, Rates (Update2)

By Alison Fitzgerald and Saijel Kishan

Feb. 19 (Bloomberg) -- Stanford International Bank Ltd., accused by U.S. regulators of defrauding investors, relied on more than high interest payments to sell $8 billion of what it called certificates of deposit.

The Antigua bank, founded by Stanford Group Co. Chairman R. Allen Stanford, attracted clients with assurances that its CDs were as safe as U.S. government-insured accounts, if not safer, investors said.

“Security was the key aspect,” said Pedro, a 62-year-old software engineer in Mexico City who invested $150,000 in CDs issued by Stanford International.

“They told me that they had insurance. The broker told me not to worry and that the bank was safe,” said Pedro, who asked that his last name not be used because he didn’t want to anger bank officials.

Most U.S. certificates of deposit are insured for as much as $250,000 by the Federal Deposit Insurance Corp. CDs issued by Stanford International, a foreign company, aren’t FDIC-protected.

A Stanford International training manual obtained by Bloomberg instructed financial advisers to tell clients that “the FDIC provides relatively weak protection.”

While its marketing materials played up coverage, the bank didn’t explicitly guarantee investors’ funds.

An “extensive insurance program has been in place for years and requires that a regular review of the bank’s risk management practices be conducted to determine that adequate safeguards are in place,” Stanford International said in a December newsletter signed by President Juan Rodriguez Tolentino.

‘Excess FDIC’

The bank “maintains insurance coverage through Lloyd’s and other underwriters: Bankers Blanket Bond; Directors and Officers Liability; Professional Liability (errors and omissions); and Excess FDIC,” the newsletter to clients said.

“Although we are aware that Stanford International Bank has insurance arrangements with the Lloyd’s market, any coverage is unlikely to extend to investment loss,” Sean McGovern, Lloyd’s general counsel said in an e-mailed statement. “We are currently researching what effect fraudulent activity will have on any coverage.”

The U.S. Securities and Exchange Commission on Feb. 17 said that Stanford, 58, ran a “massive, ongoing fraud” through his group of companies and lured investors with “improbable if not impossible” claims about investment returns. Stanford Group, Stanford International and Stanford Capital Management LLC were named in the SEC complaint.

The Federal Bureau of Investigation is investigating regulators’ allegations, a person familiar with the case said.

Whereabouts Unknown

Stanford’s whereabouts are unknown, the SEC said. He probably isn’t in Antigua, Prime Minister Winston Baldwin Spencer said.

U.S. District Judge Reed O’Connor signed a temporary restraining order on Feb. 17 freezing the Stanford companies’ assets and property, and regulators appointed a receiver to account for investor money.

A spokesman for Stanford, Brian Bertsch, earlier this week referred media inquiries to the SEC. He couldn’t be reached for comment yesterday.

Stanford told clients their funds would be placed mainly in easily sellable financial instruments, monitored by more than 20 analysts and audited by regulators on the Caribbean nation of Antigua, the SEC said.


Instead, the “vast majority” of the portfolio was managed by Allen Stanford and the Antigua subsidiary’s chief financial officer, James Davis, according to the regulator. Davis was named in the SEC complaint. A “substantial” part of the portfolio was invested in private equity and real estate, it said.

Stanford International’s one-year, $100,000 CD paid a 4.5 percent annual yield as of Nov. 28, according a posting the Web site last week. A one-year, $10,000 CD purchased at JPMorgan Chase & Co. would earn 1.75 percent, according to its consumer banking Web site.

Calling the product a CD created a false sense of security, said Bob Parrish, a financial planner and accountant in Longboat Key, Florida.

“It was a familiar term being used to describe an instrument that really would not fall within the meaning of a CD,” Parrish said in a telephone interview. He advised six clients to take their money out of Standard International, he said.

Training Manual

Stanford financial advisers were to tell clients that their CDs would be safer than certificates issued by a U.S. commercial bank, according to the training manual, issued in 2003.

“Financial institutions that do not make commercial loans are more secure than commercial banks because they do not face the risks connected with such loans,” the manual said. Stanford International didn’t make commercial loans.

Coverage included a depositary insolvency policy protecting bank funds held in correspondent financial institutions, a “Bankers Blanket Bond with Lloyds of London” and directors and officers insurance, according to the manual.

“SIB is probably the only offshore bank in the world with this type of coverage,” the manual stated.

Allen Stanford worked to create the image of a company with decades of history. In an internal publication called “The Lodis Report,” provided to Bloomberg by a former marketing executive, Stanford Group described how it hired an outside firm to “create a new image campaign” that would “return to the very beginnings of our family of companies.”

Caribbean Background

Promotional materials then began invoking the image of Allen Stanford’s grandfather, Lodis B. Stanford, the founder of a small insurance company during the Great Depression, and saying the younger Stanford’s group of companies rose out of those beginnings. U.S. court records show that Stanford International, which Allen Stanford founded first, was formed in 1985 on the Caribbean island of Montserrat and moved to Antigua in 1990.

A black and red, hardbound book provided to investors shows a photo of Lodis Stanford on the cover with the quote, “Build a business step-by-step, on a firm foundation of hard work, clear vision and valuable service.”

The quote appears on Stanford Group’s Web site as well.

Allen Stanford set up a network throughout the U.S. south, hiring brokers from large investment firms including UBS AG and Merrill Lynch & Co. to court wealthy investors such as doctors and retirees who were not always experienced with financial products, according to two former financial advisers and clients. Stanford then set up an incentive structure to steer money into the Antigua bank.

U.S. Trust Hires

In July 2007, the company hired a team of eight executives from U.S. Trust Co. to work out of Greensboro, North Carolina, where the firm’s private-client group planned to target wealthy investors, according to statement at the time. The team was made up of John Rich, Glenda Burkett, M. Jo Brooks, Ken Dimock, Anthony Monforton, Virginia Saslow, William “Wes” Watson and Suzanne Wilcox.

Peter Comer, an Austin, Texas, software salesman, said he moved his money to Stanford when his Merrill Lynch brokers started working there, and invested in the offshore CDs.

“Sometimes it didn’t feel right, but I got assurances from my brokers,” he said. “These guys who worked for Merrill and moved over to Stanford, they had reputations.”

Stanford created a mutual-fund wrap program as a way to attract high-net worth customers and funnel additional money to the Antigua bank, according to Jerry Walters, a former Houston investment analyst who said he helped create the product.

Broker Bonuses

Called the Stanford Allocation Strategy, it was conceived by Chief Investment Officer Laura Pendergest-Holt in 2006, Walters said. Pendergest-Holt was named in the SEC complaint.

“She wanted a product that was really hitting high-net- worth people,” he said.

Walters said the company would put half an investor’s money into a variety of mutual funds and the other half into the CDs. The company offered broker bonuses, and sales of the CDs exploded after the mutual-fund wrap product was introduced, nearly doubling from $200 million in November 2005 to $372 million three months later.

“The only way they were going to make any money is if they used this product,” Walters said.

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Swiss bank to ID U.S. tax evaders

The world became smaller Wednesday for U.S. citizens seeking to hide money in Swiss bank accounts.

Banking giant UBS AG, Switzerland's largest bank, agreed to pay $780 million to settle accusations that it helped U.S. customers hide money from the IRS. And in what the Justice Department described as an "unprecedented move," UBS agreed to provide the names of up to 20,000 Americans who sought to avoid paying income taxes by keeping secret accounts.

According to court records, those U.S. customers, who had assets totaling about $20 billion, did not pay taxes on income earned on their UBS accounts.

"The veil of secrecy has been pulled aside and we will continue to aggressively pursue those who shirk their federal tax obligations or assist others in doing so," said John A. DiCicco, acting assistant attorney general for the department's tax division.

The agreement also requires the bank to stop doing business with Americans with undeclared accounts.

Prosecutors say UBS used outside lawyers and accountants to help their American clients commit tax evasion. The bank also sent letters to clients reminding them that UBS has successfully concealed account information from U.S. authorities since at least 1939.

According to court records, UBS employees received special training to avoid the notice of authorities when traveling to the U.S. on business.

In 2004, the Justice Department said, 32 bankers came to the U.S. to meet with about 3,800 clients. The bankers used encrypted laptops and counter-surveillance techniques to elude authorities.

The agreement reached Wednesday in U.S. District Court in Florida follows a lengthy investigation that has already seen one UBS banker plead guilty to criminal charges and a high-ranking executive go on the run.

Last June, UBS private banker Bradley Birkenfeld pleaded guilty to helping a client hide $200 million in assets from U.S. authorities. Five months later, Raoul Weil, a UBS executive was indicted on charges that he helped American clients hide $20 billion in assets from U.S. tax authorities. Mr. Weil, who was the head the bank's largest unit, wealth management, was declared a fugitive last month after avoiding capture.

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Playboy confronting naked truth about future

NEW YORK - Playboy Enterprises Inc, publisher of one of the world's best known adult magazines, posted a wider fourth-quarter loss, hurt by $157.2 million in restructuring and other one-time costs, as well as weaker-than-expected revenue.

The company, which posted a net loss in each quarter of 2008, also said it would be open to discussions about an outright sale of the company, or changes in the strategic direction of the flagship Playboy Magazine.

Net loss for Playboy, which in recent months has seen a management shake-up including the resignation in December of longtime Chief Executive Christie Hefner, was $145.7 million, or $4.37 per share. This compares with a loss of $1.1 million, or 3 cents a share, in the year-ago period.

Revenue declined to $69.8 million from $85.9 million, due in part to the sale of its television studio assets.

Analysts had expected revenue of $73.7 million, according to Reuters Estimates.

In the fourth quarter, the company said its Entertainment Group profit doubled to $5 million, due to improved profitability in its domestic TV business. Revenue in the unit fell 21 percent.

In its licensing unit, which is responsible for placing the company's iconic bunny ears logo on everything from T-shirts to diamond pendants, income declined 38 percent to $4.3 million.

Last month, Playboy said it would cut jobs, consolidate online and print operations and take a writedown as the company struggles with a declining audience in a poor economy. The company cut 14 percent of its workforce in 2008.

"The results of our (cost-cutting) efforts to date should be meaningful, but in the face of current economic conditions, it is clear that our streamlining initiatives need to continue," interim Chairman and Chief Executive Officer Jerome Kern said in a statement.

Playboy said it expects to mark additional charges in 2009, including a noncash impairment charge of about $5.0 million in the first quarter. In the first half of 2009, the company expects to record about a $9.0 million charge relating to the closing of its New York office.

On a conference call with analysts, Kern said the company is "actively engaged" in a CEO search. Hugh Hefner, the company's 82-year-old founder and father of Christie Hefner, still oversees Playboy magazine as editor-in-chief, from the lengthy articles to the jokes page, cartoons and the airbrushing of the nude layouts.

Playboy's shares rose marginally on Wednesday, gaining 5 cents, or 3.3 percent, to $1.55 on the New York Stock Exchange.

Copyright 2009 Reuters.

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Drunk man run over by train awarded $2.3 million

From Jason Kessler

NEW YORK (CNN) -- A Manhattan jury awarded $2.33 million to a man who lost his leg after drunkenly stumbling onto the path of an oncoming subway train.

Dustin Dibble fell on New York subway tracks, was hit by a train and had his leg severed in 2006.

Dustin Dibble fell on New York subway tracks, was hit by a train and had his leg severed in 2006.

Dustin Dibble, 25, landed in the subway tracks after a late night watching a hockey game at a bar with friends April 23, 2006. A downtown N train ran over him, severing his right leg.

According to Dibble's lawyer, Andrew Smiley, NYC Transit rather than Dibble bore primary responsibility for the accident because the subway driver had time to stop the train but did not.

Smiley added that Dibble's drunkenness did not excuse the driver, who said in a court deposition that he mistook Dibble for an inert object.

"They don't get a free pass as to why the person was on the tracks. They are trained to be able to look out for people on the tracks ... and people are known to be intoxicated by night," the lawyer said.

Dibble's blood-alcohol level at the time of the accident was .18, according to his lawyer, more than twice the legal limit had he been behind the wheel of a car.

The jury ruled Tuesday that Dibble was 35 percent responsible for the accident, so his monetary compensation was also reduced by 35 percent -- from $3,594,943 to $2,336,713.

The deficit-plagued MTA plans to appeal the decision, according to spokesman James Anyansi.

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After Prison, Few Places for Sex Offenders to Live

CEDARTOWN, Ga. -- After two years of fitful searching, Christopher Noles and his family finally found a modest three-bedroom house in rural Georgia. The bedrooms are cramped, the kitchen plumbing leaky. There isn't a neighbor in sight.

But the lonely old house is a last refuge. Mr. Noles is one of nearly 16,000 sex offenders convicted in Georgia who, under state law, can't live or work within 1,000 feet of a church, school, day-care center, skating rink, park, swimming pool or any other place where children gather. Failing to register an address could mean 30 extra years in prison for a convicted sex offender.

Andrew Kornylak/Aurora Select for The Wall Street Journal

For Christopher Noles and his family, this three-bedroom house in rural Georgia is a last refuge. Being listed in a database of sex offenders, Mr. Noles can't live or work within 1,000 feet of any location where children routinely congregate.

The crime that placed Mr. Noles, now 31 years old, in Georgia's database of sex offenders was having sex in August 1996 with his girlfriend. He was then 17, while she was 14. Both said the sex was consensual, and they later wed. But state law at the time said it was statutory rape for either an adult or a minor to have sex with someone under the age of 16. After the girl became pregnant, a family member reported the liaison to police. Mr. Noles pleaded guilty and spent three months at a prison boot camp.

He thought he paid his debt to society. But under a 2006 Georgia law, Mr. Noles and nearly every person convicted of any of dozens of crimes considered sex offenses must be listed on a publicly available database. They must keep police notified of their address at all times and can never reside or work near any banned area.

An additional requirement prohibits any convicted sex offender from volunteering at church. Mr. Noles says he skips all church activities -- including a play in which his 11-year-old daughter performed at Pleasant Valley South Baptist Church in Silver Creek, Ga. "I'd rather be able to tuck my kids into bed every night than to have to dream about them from prison," he says.

Laws cracking down on sex offenders enjoy broad public support across the U.S. All states require offenders to report to law enforcement, but Georgia's statute is considered to be among the toughest such laws in the U.S. for its living restrictions and sentences. The law has set off messy conflicts between politicians and others who argue sexual criminals should be aggressively tracked and isolated and those who say lawbreakers -- especially juveniles and nonviolent offenders -- deserve a second chance.

Among the most vocal critics of the laws are police. Some sheriffs say the crackdown on sex offenders forces them to divert substantial resources from investigating active criminals to monitoring and tracking offenders who aren't threatening. Enforcing the additional restrictions from the 2006 law cost sheriffs' offices about $5 million in 2007, says the Georgia Sheriffs' Association.

Some states also object to a recent federal law requiring states to impose strict standards for registering sex offenders, arguing it's too costly and no more effective than their own state laws.

"Oh, my God, it's overwhelming," says Capt. Ronald Applin, who works in the Fulton County sheriff's warrant-service division that tracks down anyone deemed too close to children for comfort. Monitoring more than 1,500 sex offenders in the state's most-populous county requires four deputies full time, he says.

It's not clear whether the laws have had any effect on the frequency of sexual offenses in Georgia. Only 90 of the 15,800 people listed as sex offenders are classified by law-enforcement officials as dangerous "predators," which the state defines as someone who is at risk of perpetrating a future sexual offense. The number of rapes in the state increased slightly between 2006 and 2007, but the laws haven't been in effect long enough to establish clear statistical patterns, experts say.

Law-enforcement officials say the law has forced many sex offenders to move. According to an analysis by The Wall Street Journal of records compiled by the Georgia Bureau of Investigation, more than 8,400 of the sex offenders on the registry, or 68%, moved between June 2006 and November 2008 -- far higher than in previous periods. More than a hundred left the state entirely.

Still hanging over those listed on the Georgia registry is a provision approved as part of the 2006 law forbidding them from living within 1,000 feet of a school bus stop. But enforcement of that requirement was stayed by a federal judge in response to a lawsuit filed by several sex offenders. If the measure ultimately goes into effect, the vast majority of Georgia would be legally uninhabitable to anyone on the registry, according to sheriffs across the state.

Defenders say residency restrictions are one of the few ways society can protect itself from repeat sex offenders. "Nothing is going to be 100% effective unless every single offender goes to jail," says Monica Lukisavage, a day-care operator in Stevens Point, Wis., whose daughter was abducted at age 13 by a neighbor in 1995, held in captivity for three months and repeatedly raped and beaten. "But these restrictions are a step in the right direction."

Laura Ahearn, executive director of Parents for Megan's Law and The Crime Victims Center, based in New York, says employment and residency restrictions are necessary, because therapists and treatment organizations can't guarantee a sex offender won't re-offend. "Residency restrictions can give the community more security and safety when they know offenders are being monitored," she says.

More than 30 states, including California, Michigan and Ohio, already ban sex offenders from residing in certain areas, according to the National Conference of State Legislatures. Several states have also dramatically tightened their registry requirements.

Georgia first imposed residency restrictions in 2003, banning sex offenders from living near schools, day-care centers and parks. But the issue only exploded onto the public radar in February 2005, when 9-year-old Jessica Lunsford was kidnapped from her family's home in Homosassa, Fla. The girl was raped and killed by being buried alive just 150 yards from her home.

Stirred by the Lunsford case, Georgia State Rep. Jerry Keen introduced sweeping revisions to strengthen the Georgia registry law. The changes banned offenders from working near those locations and added churches, swimming pools and school bus stops.

But soon there were signs that the newly strengthened law might have gone even further than intended. Law-enforcement officials were required to order hundreds of people to move. The requirements make no distinction between the most heinous sex offenders -- such as child rapists -- and those who had consensual sex with an underage girlfriend. More than 800 of those on the Georgia list committed their offenses before they turned 19 years old, according to a Wall Street Journal analysis. Since then, exceptions have been added to Georgia's statutory-rape laws reducing the charges against minors having sex.

Generally, offender names are on the list for life or can't be removed until at least 10 years after probation. It's unclear how many of the nearly 16,000 offenders tried to have their names removed since the law went into effect, but the petitioning process is difficult. Between 2006 and 2008, 70 records were deleted from the registry based on court orders, according to the Georgia Bureau of Investigation. In 2007, Georgia's Supreme Court ruled that the new 1,000-foot restrictions violated property rights. But state lawmakers circumvented the court's decision by allowing offenders who had long owned their property to remain in their homes.

Former Polk County Sheriff's Office Maj. Mike Sullivan says the proximity-based employment and residential restrictions create a false sense of public safety. None of the 78 offenders he was tracking before he retired committed their crimes on victims they lived or worked near, he says. Instead, he worries that the residency laws destabilize past offenders by forcing them to move or lose their jobs and that pushing sex offenders to cluster together in the few livable areas of the state could ultimately encourage illegal behavior.

At the time the 2006 law took effect, Mr. Noles, then a truck driver, was busy dropping off loads at Davenport Lumber Company in Rockmart, Ga. After getting divorced from his first wife of seven years, he was raising his newborn son with his second wife, Rita. The sheriff told him to stop delivering to the lumber company because its grounds bordered a church. It made no difference that Mr. Noles didn't work on Sundays, rarely was at the lumber yard and had letters from his boss begging a probation officer to let him stay, citing a clean, two-year work history. For the last two years, he has been unemployed the majority of the time, scraping by as a freelance construction worker.

"I'll do any job I can, but the law is forcing me out of the county," he says. "And there just aren't that many job opportunities out here."

It took two years of scavenging real-estate ads and dozens of nights in motel rooms for the Noles family finally to locate and rent a home that didn't violate the sex-offender statute. Mrs. Noles says she is tired of repeatedly uprooting her life to comply with the law. Now, with many acres of wide pastures surrounding the new home, she is hopeful. "This time, it's for real," she says. "We're staying."

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Will President Obama's New Housing Plan Work?

By Barbara Kiviat

foreclosure housing
Slowing foreclosures will help the housing market more than helping people pay mortages

The Obama Administration rolled out its much awaited foreclosure-prevention plan on Wednesday, saying it could help as many as 7 million to 9 million homeowners meet their mortgage payments. In contrast to last week's detail-light financial-rescue blueprint, the multipronged policy to shore up the housing market, announced by the President on a trip to foreclosure-riddled Phoenix, was packed with specifics. Key components include modifying the terms of delinquent loans, refinancing underwater mortgages and plowing more money into the federal housing agencies in order to keep mortgage rates low.

How effective all that will be remains unknown. No plan can change the fundamental economics of a bubble deflating or an economy stalling — of overpriced homes returning to more reasonable prices and out-of-work homeowners not having the income to make mortgage payments. What this plan does offer, though, is a series of targeted interventions designed to help specific groups of borrowers and by doing that, it's hoped, limit the knock-on damage caused by foreclosures both to neighborhoods and to the overall economy. "This will help some people who deserve to be helped," says Joe Gyrouko, a professor of real estate and finance at the University of Pennsylvania's Wharton School. "But will this stop the decline in housing prices? No." (See the 25 People to Blame for the Financial Crisis.)

The main part of the plan calls for spending up to $75 billion of Treasury's TARP funds to restructure the loans of homeowners who are behind on their mortgages or at immediate risk of falling behind. Since foreclosure is such an expensive process, most lenders are already modifying some loans voluntarily. But mortgage rewrites haven't necessarily been lowering borrowers' monthly payments by much, if at all — and people whose loans are held by investors have often been left out in the cold.

Under the new plan, servicers, the companies that collect mortgage checks, will be paid $1,000 every time they cut the interest rate on a loan to reduce the monthly payment to no more than 38% of a borrower's gross income. The government will split the cost of reducing the debt-to-income ratio further than that, down to 31%. Both servicers and borrowers will be paid up to $1,000 a year (for three and five years, respectively) for keeping the loan current.

Even though the program is voluntary, there are early signs that it might be the kick in the pants needed to get servicers to more aggressively rewrite loans. At a mortgage bankers' conference in Tampa, Fla., on Wednesday, servicers praised the incentive structure, and Jamie Dimon, CEO of JPMorgan Chase, went on CNBC to say he thought the plan would "lead to a lot more modifications." An earlier effort to spark loan rewrites proved to be a flop, but the Administration thinks this new program could reach 3 million to 4 million homeowners. The plan also includes an endorsement of the idea that Congress might change the bankruptcy code to let judges write down mortgage debt — a not-too-subtle reminder that if the mortgage industry doesn't play ball with voluntary modifications, a more imposing solution could be around the corner. (See pictures of Americans in their homes.)

In crafting the plan, policymakers had to walk a fine line between helping borrowers who have been caught off guard by tricky mortgage products and falling house prices and those who simply made imprudent decisions and genuinely can't afford their homes. In order to avoid propping up the second group, Treasury won't subsidize loan modifications that reduce the interest rate below 2%. If you can't afford a 2% mortgage, in the eyes of the government, you can't afford your house. The plan also doesn't apply to investors or people with jumbo mortgages — those, historically, larger than $417,000. Loans for homes that would be more valuable to lenders if repossessed won't get modified.

Those attempts to avoid moral hazard, though, might make the plan less effective in stemming the tide of foreclosures. "This goes a long way but not far enough," says Bruce Marks, who runs the Neighborhood Assistance Corporation of America, a nonprofit that works with servicers to restructure loans. After five years, the interest rate on modified loans can rise again, up to the industry average when the change is made, even if that pushes borrowers above the 38% payment-to-income ratio. The plan encourages but does not require servicers to make adjustments to principal balance — the generally acknowledged best way to keep people in their homes, especially when they owe more than their house is worth. In markets where home prices have dropped most precipitously or where investors make up a large portion of the home buyers, the plan will probably fall far short of having much of an impact.

But that may simply reflect the reality that there are a lot of people in homes who aren't going to be in them long term and that trying to keep them there is throwing good money after bad. The plan allocates money that implicitly acknowledges that: $1.5 billion to help displaced homeowners transition back to being renters and $2 billion to boost HUD's Neighborhood Stabilization Program, which lets cities and states deal with foreclosure fallout. (See pictures of the recession of 1958.)

In a nod to the notion that the government should do something to help responsible homeowners, the plan also seeks to help borrowers who have been making mortgage payments on time but can't refinance into cheaper loans because they've seen equity in their homes evaporate as prices have plummeted. The federal housing agencies Fannie Mae and Freddie Mac will refinance loans they hold or guarantee, even if borrowers owe more than their house is worth — up to 105% of the value of the property. The Administration figures that offer could reduce monthly payments for 4 million to 5 million borrowers.

But many of the same limitations apply to this part of the plan. Only interest payments will be lower, not principal balances. Homeowners who owe more than 105% of the value of their house — as is often the case in the worst-hit areas of the country — will be ineligible. And holders of jumbo loans need not apply. Again, that might reflect a sense of fairness — why should we help people who stretched beyond their means to buy McMansions? — but it ignores the facts that the delinquency rate among jumbo loans is spiking and that a foreclosed property hurts the value of surrounding ones, no matter the size of the house.

Finally, the plan bolsters the amount of money allocated to Fannie Mae and Freddie Mac in an effort to keep mortgage rates low and entice new home buyers into the market, since new buyers are what's needed to drive down the number of extra houses for sale. The two agencies, which financed or guaranteed nearly three-quarters of new home loans last year as private players retreated, will be allowed to hold more mortgages on their books and could eventually see additional infusions of cash from selling preferred stock to the Treasury Department — an authority granted in legislation last July. Those moves, as well as Treasury's continued purchase of Fannie and Freddie mortgage-backed securities, are designed not only to foster liquidity but also to instill confidence in the housing market.

Confidence — people believing that things are going to get better and that it's time to move off the sidelines — is a key part of any long-lasting housing rebound. It's also, unfortunately, impossible to mandate.

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