Monday, July 28, 2008

Mortgage Debt Least of Bad Bets as Investing Sinks

Mortgage Debt Least of Bad Bets as Investing Sinks

By Daniel Kruger

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The fastest inflation in 17 years and a fourth straight quarter of U.S. profit declines are turning debt sold by Fannie Mae and Freddie Mac into the favorites of the world's biggest bond investors.

Pacific Investment Management Co., T. Rowe Price Group Inc., RiverSource Institutional Advisors and U.S. Bancorp's FAF Advisors, which oversee more than $1 trillion, say the government's decision to stand behind the beleaguered U.S. housing finance companies and their yields compared with Treasuries make the bonds a buy. The Senate approved legislation on July 26 allowing the U.S. to inject capital into Fannie and Freddie. President George W. Bush plans to sign it into law.

‘‘We like it,'' said Bill Gross, who oversees the $128 billion Total Return Fund, the largest bond fund in the world, for Newport Beach, California-based Pimco. ‘‘This legislation has indicated to investors that Fannie and Freddie are not implicitly guaranteed, not explicitly guaranteed, but we're close to that point.''

So far, 2008 has been a disaster for investors in the U.S. The fastest inflation since 1991 is diminishing returns of government debt, while the 256 companies in the Standard & Poor's 500 Index that reported earnings this quarter said profits fell an average 24 percent, hurting stocks and corporate bonds. Investors have accumulated $3.47 trillion in money market funds, just below the record set in April, according to the Money Fund Report newsletter.

Worst Since 1999

Corporate bonds, mortgage securities and Treasuries returned 0.5 percent on average in 2008, Merrill Lynch & Co. index data shows. This year is the worst for fixed-income investors since 1999, when they lost 1 percent. The securities gained 7.17 percent on average in 2007, including reinvested interest.

The bond market isn't providing investors with enough income to cover the rate of inflation, which rose 5 percent in the year ended June 30, Labor Department data show.

Treasuries returned 1.8 percent since December, after posting losses of 2.1 percent the three months ended June 30, the worst quarterly performance in four years. Corporate debt is down 0.2 percent, losing 0.7 percent last quarter, Merrill data show.

The S&P 500 fell 14 percent and the dollar declined 5.1 percent against the currencies of six trading partners as U.S. financial institutions posted loses and writedowns totaling $244 billion in the deepest housing recession since the Great Depression.

Dwindling Returns

Debt sold by Fannie Mae and Freddie Mac returned 1.63 percent this year, after losing 1.72 percent last quarter, according to Merrill Lynch index data. Bonds backed by the mortgages they own returned 0.73 percent this year following a loss of 0.66 percent in the three months ended June 30, a separate index shows.

The performance of U.S. assets ‘‘is a reflection of the environment we're in today, which is a sluggish economy with some inflationary concerns,'' said Colin Lundgren, who is buying agency-backed mortgages as head of institutional fixed income for RiverSource in Minneapolis, which oversees $40 billion.

Economic growth may slow to 1.5 percent this year from 2.2 percent in 2007 as the benefits of $110 billion in tax rebates wear off and higher energy and food prices spur inflation to 4.1 percent, according to estimates of more than 60 forecasters surveyed by Bloomberg News.

Mortgage Bonds

Washington-based Fannie and Freddie of McLean, Virginia, buy mortgages from lenders and either hold them or package them as securities for sale to investors. They fund purchases by selling so-called agency debt. The companies also buy some of the securities they create from home loans, which investors refer to as agency mortgage bonds. The government-chartered companies account for almost half of the $12 trillion U.S. mortgage market.

Fixed-rate mortgage bonds guaranteed by Fannie or Freddie are attracting buyers because the debt yielded about 1.50 percentage points more than Treasuries with maturities similar to their expected lives on July 25, according to Lehman Brothers Holdings Inc. data. The gap between the yields is approaching the widest point in two decades that was set in March, the data shows.

‘‘The valuations should be attractive enough for traditional debt investors to make the shift'' to the securities, analysts at New York-based Lehman led by Vikas Shilpiekandula wrote in a report dated July 28.

The yield spread on fixed-rated mortgage securities sold by Fannie and Freddie widened 0.26 percentage point this month to near the March high of 1.71 percentage points, Lehman data show.

Losing Confidence

Investors lost confidence in the debt this year on concern Fannie and Freddie wouldn't have enough capital to cover losses. Foreclosure filings more than doubled in the second quarter from a year earlier as falling home prices left borrowers owing more on mortgages than their properties were worth.

The companies reported combined losses of more than $11 billion over the past three quarters and the total may climb to $48 billion by the end of next year, according to a July 18 report by JPMorgan Chase & Co. analyst Matthew Jozoff in New York.

S&P said on July 26 that it may downgrade the subordinated bonds of Fannie and Freddie. A cut would affect $19.2 billion of AA- rated debt, according to data compiled by Bloomberg. S&P affirmed the AAA ratings of the companies' senior debt.

S&P said the legislation authorizing a backstop of the mortgage-finance companies leaves it up to the Treasury to decide whether to honor preferred dividend payments or to repay subordinated bondholders before the government.

‘Implicit Guarantee'

Fannie dropped 58 percent to $11.29 on the New York Stock Exchange since the start of June, while Freddie tumbled 67 percent to $8.28. A year ago, both were above $50.

Fannie, founded in 1938 as part of President Franklin Delano Roosevelt's New Deal, and Freddie, created in 1970, would cost U.S. taxpayers an estimated $25 billion over two years under Treasury Secretary Henry Paulson's plan if a bailout was necessary, the Congressional Budget Office said July 22.

White House spokesman Tony Fratto said Bush will sign the legislation into law, which will give the Treasury the right to buy unlimited stock in Fannie and Freddie and provide loans to the companies.

The companies ‘‘are part of the solution in terms of the mortgage crisis,'' said Wan-Chong Kung, who manages $36 billion in fixed income at Minneapolis-based FAF Advisors, the asset- management arm of U.S. Bancorp. ‘‘To the degree they are seen as having any problems it only strengthens their tie to the government in terms of their implicit guarantee.''

Extra Yield

The agency mortgage-backed securities market totals $4.6 trillion, about the same size as the Treasury market.

Five-year bonds sold by Fannie Mae yield 0.74 percentage point more than Treasuries of similar maturity, almost double the average over the past 10 years, according to data compiled by Bloomberg. That spread represents $74,000 in extra annual interest per $10 million of bonds.

The spread compares with a record low of 0.07 percentage point in May 2003, a month before Freddie disclosed accounting errors, and a high of 1.15 percentage points in March, just before the Federal Reserve agreed to finance JPMorgan Chase & Co.'s bailout of Bear Stearns Cos. Freddie debt also pays a spread of 0.78 percentage point.

Spreads provide a measure of sentiment, widening when bond investors are less confident that a borrower will repay its debt. Narrower spreads generally mean the opposite.

‘‘They offer a lot of attractiveness,'' said Seth Plunkett, a fund manager at Mountain View, California-based American Century, which oversees about $20 billion in fixed income. ‘‘Agency mortgages have the government guarantee. They are also backed by the mortgages underneath.''

U.S. Deficit to Reach Record $490 Billion in 2009

U.S. Deficit to Reach Record $490 Billion in 2009

By Roger Runningen

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The U.S. budget deficit will widen to a record of about $490 billion next year, an administration official said, leaving a deep budget hole that will constrain the next president's tax and spending plans.

The projected deficit for the fiscal year that begins Oct. 1 is higher than the $407 billion forecast by President George W. Bush in February. The bigger shortfall reflects dwindling tax receipts because of the U.S. economic slowdown, the cost of a $168 billion economic stimulus package and spending on the wars in Iraq and Afghanistan.

‘‘We've already seen a pretty sharp cooling in tax receipts, and it's just going to continue into next fiscal year,'' Stephen Stanley, chief economist at RBS Capital Markets, said in a telephone interview.

The deficit projection will burden either Republican John McCain and Democrat Barack Obama, the presumptive presidential nominees of the major political parties, with a constricted budget that has little room for cutting taxes or increasing spending. The next president also will inherit the deepest housing recession in a generation, fears of a crisis in the banking industry, a falling dollar and high energy prices.

Campaign Promises

McCain has promised corporate and individual tax cuts that are projected to cost $4.2 trillion over 10 years along with spending to promote U.S. energy independence. Obama is vowing to enact a plan for universal health care, middle-class tax cuts and proposes spending on education and job training.

Instead, both likely will be forced to put their campaign promises on hold to reinvigorate the economy and drive down the deficit while also grappling with left-over foreign policy problems such as the wars and the nuclear ambitions of Iran and North Korea.

The official, who asked not to be named, also confirmed a report in USA Today that the deficit this year will be less than the $410 billion estimated in February. The White House budget office will release its mid-session review of the government's balance sheets at 1:45 p.m. today.

Treasuries rose as the forecast for a higher budget deficit and a rise in European bond prices led to increased speculation the U.S. economy will slow amid decreasing global growth.

The deficit is one of the ‘‘underlying themes that people are nervous about. It's just more bad news, and that leads to more buying of Treasuries,'' said Charles Comiskey, co-head of U.S. Treasury trading in New York at HSBC Securities USA Inc.

Deteriorating Budget

The shortfall reflects a deterioration of the budget over the past seven years. Bush inherited a budget surplus of $128 billion when he took office in 2001. The budget worsened almost immediately, because of recession, the Sept. 11 attacks, the beginning of the war in Afghanistan and, later, the war in Iraq that began in March 2003.

Bush recorded his first deficit a year after being sworn in, and it widened to the current record of $413 billion in 2004.

Five months ago, the administration projected a shortfall of more than $400 billion this year and next, reflecting a struggling economy, and forecast a recovery to a $160 billion deficit in 2010, declining to $96 billion in 2011 and finally a $48 billion surplus in 2012.

War Costs

The current projections may understate the deficit next year because the administration hasn't requested money to prosecute the wars for the full year, leaving that to the next president. Military operations in Iraq and Afghanistan now are costing about $10 billion to $12 billion a month.

Asked today if the administration still believes it's on a path to a balanced budget by 2012, White House press secretary Dana Perino said , ‘‘I believe so, yes.''

She called the deficit ‘‘temporary and manageable.''

The Bush administration and Congress also haven't dealt with the largest long-term fiscal problems: the growing costs of Medicare, Medicaid, and Social Security. Those three programs consumed an estimated 41 percent of the federal budget in 2007.

Obama is meeting today with his top economic advisers ‘‘on America's pressing economic challenges,'' his campaign said. The Illinois senator was to meet with business and labor officials on oil, food and other commodities, topped with discussions with investor Warren Buffett, former Chairman of the Federal Reserve Paul Volcker, and former Treasury Secretary Robert Rubin, among others.

McCain Meetings

McCain, an Arizona senator, was scheduled to talk about the economy at town-hall meetings with voters in Nevada and Wisconsin.

Record gasoline prices, plunging home values and shrinking credit access have thrust the economy to center stage. The Labor Department this week may report a seventh straight month of job losses.

House Budget Committee Chairman John Spratt, Democrat of South Carolina, took the administration to task for a record deficit, citing news accounts.

‘‘If these reports prove accurate, they confirm the dismal legacy of the Bush administration: under its policies, the largest surpluses in history have been converted into the largest deficits in history,'' Spratt said in an e-mailed statement.

A Bloomberg survey of 28 analysts completed July 25 showed the average estimate for the deficit at $447 billion next year and $407 billion this year.

U.S. Treasury to Barrow $171 Billion This Quarter

U.S. Borrowing to Rise to $171 Billion This Quarter

By John Brinsley and Rebecca Christie

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The U.S. Treasury predicted it would borrow 53 percent more this quarter than initially forecast as increases in spending and sluggish economic growth swell the budget deficit.

Borrowing needs will rise to $171 billion in the three months to Sept. 30, $59 billion more than predicted in April, the Treasury said in a statement in Washington. That total, if realized, would be the second-largest ever after a record $244 billion was borrowed in the first three months of this year.

After improving for three straight years, the U.S. budget is deteriorating as a slowing economy hurts tax revenue and spending increases. The Bush administration, which entered office in 2001 with a $127 billion budget surplus, earlier today predicted the next president faces a record deficit totaling $482 billion in 2009.

‘‘The economic slowdown and increased expenditures associated with slower growth and with the stimulus has had an effect on the federal budget,'' Phillip Swagel, the Treasury's assistant secretary for economic policy, said in a statement.

In the final three months of the year, the Treasury said borrowing would reach $142 billion.

The Treasury predicted three months ago it would pay down $35 billion in marketable debt in the April-June quarter and have a cash balance June 30 of $45 billion. While the government often runs a surplus in the second quarter as individuals pay annual income taxes by the April 15 deadline, that didn't happen this year.

Second-Quarter Borrowing

Today, the department said it borrowed $13 billion in the second quarter and the cash balance at the end of the period was $53 billion. ‘‘The increase in borrowing was primarily the result of lower receipts, higher outlays, redemptions of portfolio holdings by the Federal Reserve System and adjustments to cash balances,'' the Treasury said.

Three months ago, the department predicted a cash balance of $45 billion Sept. 30 -- the last month of the government's fiscal year -- and today left that estimate unchanged. The cash balance will be $40 billion on Dec. 31, the Treasury said.

The department estimated total marketable borrowing in fiscal 2008 would total $555 billion. So far this fiscal year, the Fed has redeemed $151 billion in U.S. government securities from its System Open Market Account, which the Treasury said were excluded from the marketable borrowing estimates.

Credit Conditions

In a series of charts accompanying the announcement, the Treasury said ‘‘credit market conditions and ongoing liquidity initiatives add uncertainty to borrowing requirements.'' In addition, ‘‘volatility in projected receipts and outlays as well as reduced non-marketable debt issuance could also lead to increased near-term marketable financing needs.''

The White House earlier this year said the budget shortfall would rise to $389 billion for fiscal 2008 from $163 billion in 2007 and $482 billion in 2009.

Before Treasury's announcement, analysts were already predicting the government would need to brace for more red ink. The borrowing needs are likely to show the first signs of the shortfall to come, said Louis Crandall, chief economist at Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm.

‘‘Those will be very large,'' Crandall said. ‘‘I'm looking for $165 billion in the current quarter and something not much smaller in the October to December quarter.''

Debt Sales

The Treasury's borrowing forecast comes two days before details on the size of the Treasury's quarterly refunding of longer-term debt. The department will announce July 30 the amount of 10- and 30-year debt it plans to auction next week, and any other changes to financing plans.

The U.S. will likely sell $16 billion in 10-year notes and $9 billion in 30-year bonds in August, according to the median estimate of five economists.

Bond dealers also are watching to see if the Treasury indicates plans to bring back the three-year note or increase the number of 10 year note auctions. The department announced in May 2007 that it was suspending sales of three-year notes, when tax receipts were rising and the deficit was shrinking.

Even if there are no changes this quarter, there may be a borrowing expansion in the months ahead.

‘‘We do not believe the Treasury needs to reintroduce the three-year or seven-year note at this time, and think that there is still room for increases in short-term debt issuance in fiscal year 2009,'' said Lehman Brothers economist Zach Pandl, in an interview before today's announcement. ‘‘However, the medium-term budget outlook is deteriorating quickly, and risks to our supply forecasts are likely to the upside.''

Fannie Mae Unsold $5 Billion Homes Bring Peril to Shareholders

Fannie Mae Unsold $5 Billion Homes Bring Peril to Shareholders

By Bob Ivry and Sharon L. Lynch

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Fannie Mae, the largest U.S. mortgage finance company, couldn't find a buyer who would pay $6,900 for the three-bedroom house at 1916 Prospect St. in Flint, Michigan. So broker Raymond Megie, who is handling the foreclosure sale, advised cutting the price to $5,000.

Megie still couldn't sell it. ‘‘There's oversupply,'' he said. The home sold in 2005 for $110,000.

Fannie Mae acquired twice as many homes through foreclosure in the first quarter as it sold, regulatory filings show. Unsold properties may weigh on the company's stock, which lost almost half its value since June 5, said Moshe Orenbuch, managing director of equity research at Credit Suisse Group AG in New York. Late payments on the company's home loans, a harbinger of foreclosures, almost doubled in the past year.

Together, Fannie Mae and Freddie Mac, the two biggest U.S. mortgage finance companies, owned a record $6.9 billion of foreclosed homes on March 31, compared with $8.56 billion held by all 8,500 U.S. commercial banks and savings and loans. Foreclosed houses sell at an average discount of about 20 percent, according to economists Ethan Harris and Michelle Meyer at New York-based Lehman Brothers Holdings Inc. At that rate, the two mortgage companies stand to lose $1.39 billion on the foreclosed houses they currently own.

‘‘Progress on this is probably one of, if not the single most important economic process right now,'' Orenbuch said. ‘‘With prices IND' ))">decreasing, it's better to get rid of houses quickly.''

$10 a Share

Orenbuch, whose Fannie Mae recommendations would have yielded a 65 percent return to investors who followed them over the last year, the highest of any stock analyst tracked by Bloomberg, said the Washington-based company will sink to $10 share. That's 25 percent lower than its $13.41 New York Stock Exchange composite price yesterday.

The value of Fannie Mae's foreclosed property doubled in the first quarter to $4.72 billion from $2.4 billion a year earlier, and the number of homes it owned climbed 64 percent to 43,167, according to a regulatory filing. The amount the company sold was $952 million, compared with $706 million a year earlier.

‘‘It's a no-win for the housing market,'' said Ron Peltier, chief executive officer of Berkshire Hathaway Inc.'s HomeServices of America Inc., the second-largest U.S. residential real estate brokerage. ‘‘Where there are pockets of distressed real estate, it does have an adverse effect on the surrounding properties.''

Unpaid Principal

Fannie Mae's goal in selling its properties is to get the highest possible price, even if it means hanging on to them longer, said Gabrielle Harrison, the company's vice president for REO sales. REO stands for ‘‘real estate-owned,'' a designation for properties that have been repossessed by creditors. Getting the highest price helps preserve neighborhood property values, she said.

‘‘We want to treat that home as if it was your own, or as if you were living next door to it,'' Harrison said. ‘‘You wouldn't want that home to bring down your property value.''

The typical price Fannie Mae received for foreclosed homes sold in the first quarter fell to 74 percent of the unpaid mortgage principal from 93 percent in 2005, according to Harrison.

Harrison declined in an interview to say how long it takes to sell the average foreclosed home or estimate how many more Fannie Mae may acquire through foreclosure in the coming months.

The number of borrowers whose payments were late by 90 days or more rose to 1.15 percent in the first quarter from 0.62 percent a year earlier, according to Fannie Mae regulatory filings.

13-Year Low

Fannie Mae, led by Chief Executive Officer Daniel Mudd, contracts with up to 5,000 real estate agents to manage and sell the houses, Harrison said.

Freddie Mac fell to its lowest valuation in 13 years and Fannie Mae to its lowest in 16 years in New York Stock Exchange composite trading on July 7 after Lehman Brothers analysts said in a report that an accounting change may force them to raise a combined $75 billion.

The companies plunged another 35 percent during the next four trading days, prompting the Federal Reserve to authorize lending to them directly. On July 13, a Sunday, Treasury Secretary Henry Paulson said he would ask Congress for authority to buy unlimited stakes in the two mortgage companies.

Analysts estimate Fannie Mae will report a net loss this year of about $3.8 billion on an adjusted basis and Freddie Mac's losses will total more than $1.4 billion, according to surveys by Bloomberg.

Chartered by Congress

Fannie Mae, founded as part of President Franklin D. Roosevelt's plan to resuscitate the U.S. economy in 1938, and Freddie Mac, started in 1970, were chartered by Congress. They bundle home loans into securities to sell to investors and use cash from the sales to fund mortgage lenders. Together, Fannie Mae and Freddie Mac own or guarantee about half of the $12 trillion of mortgages in the U.S.

Securitization of residential mortgages by underwriters outside of Fannie Mae and Freddie Mac has almost stopped. Banks bundled $1.15 trillion of home loans into so-called private-label securities in 2006, Inside Mortgage Finance reported. The number fell to $46 billion in the first half of 2008, according to the Bethesda, Maryland-based industry publication.

The two government-sponsored enterprises own or guarantee 81 percent of U.S. mortgages originated this year, data compiled by the Washington-based Office of Federal Housing Enterprise Oversight show.

New Roof

The home on Prospect Street in Flint needs a new roof and carpeting and the plumbing has been ripped out, said Megie, a broker with Realty Executive Main Street LLC in Lapeer, Michigan, who sells Fannie Mae-owned homes. The house was originally listed for sale in April, he said.

‘‘Two years ago I didn't have any Fannie Mae properties and now it's probably pushing 50 percent of what I have listed,'' Megie said. Fannie Mae is fixing vandalized homes instead of ‘‘just dumping them to investors,'' he said.

Bruce Norris, a builder and real estate investor in Riverside, California, estimates about 15 percent of foreclosed houses have been intentionally damaged.

‘‘Banks can't fix all the homes because they just have too many,'' said Norris, president of Norris Group, referring to all owners of repossessed homes and not specifically to the government-sponsored enterprises.

Neighborhood ‘Blight'

The longer it takes to sell a house, the lower the profit will be, said Dean C. Williams, chief executive officer of Williams & Williams Worldwide Real Estate Auction in Tulsa, Oklahoma. It costs creditors such as Fannie Mae 2 percent of the value of the property every month in taxes, insurance, utilities, lost revenue, maintenance, management and cleanup after vandalism, Williams estimates.

‘‘This problem is not just how it affects the credit markets, it's how it affects neighborhoods,'' Williams said. ‘‘We use the word ‘blight.' It becomes a reinforcing vicious circle in terms of the value of ownership. Now the value of ownership is increasingly a negative return.''

Fannie Mae owns or guarantees $51.2 billion of subprime loans, those given to borrowers with bad credit histories, a category that makes up about 2 percent of its total mortgage holdings, according to the company's Web site. Subprime mortgages default at five times the rate of prime mortgages, according to the Mortgage Bankers Association in Washington.

Alt-A Mortgages

Fannie Mae also owned or guaranteed $344.6 billion of Alt-A mortgages, which are granted without full documentation of a borrower's income. Those loans represent about 13 percent of the company's holdings.

Less than 1 percent of its loans, or $20.6 billion, are payment-option adjustable-rate mortgages that let borrowers pay less than they owe each month, with the unpaid balance added to the principal.

Freddie Mac's inventory of foreclosed homes also is rising. The value of single-family properties that McLean, Virginia-based Freddie Mac held in the first quarter rose to $2.2 billion from $871 million a year earlier, according to a regulatory filing. The company acquired 9,939 homes in the quarter, sold 5,914 and owned 18,419 properties at the end of March.

Freddie Mac's real estate is managed and sold by a network of 1,800 brokers coordinated by its HomeSteps division in Carrollton, Texas, according to spokesman Brad German. HomeSteps spends an average of $5,000 on repairs to each house, German said.

Days On Market

Freddie Mac-owned properties spend an average of 152 days on the market and typically sell for 92 percent of the listed price, usually about 30 percent less than the peak prices of 2006, said Ingrid Beckles, vice president of servicing and asset management. The company re-evaluates prices every two weeks, she said.

‘‘We are very careful to ensure our properties are not driving market values down and they show well,'' Beckles said. ‘‘Our challenge is like everyone else's from a IND' ))">volume perspective: maximize recovery and minimize credit losses, and balance that with making sure we're not driving down property values and not destabilizing neighborhoods.''

Part of the difficulty for all owners of foreclosed property, and not just Fannie Mae, is a shortage of qualified agents in the field who can sell the homes efficiently, said Jesse Ramirez, a broker associate at Re/Max Partners Real Estate in Corona, California.

‘‘They are all recent college grads without experience,'' Ramirez said. ‘‘They have 300 files each and they're overwhelmed. They don't understand how the typical transaction goes. These people didn't have jobs two years ago, not doing this.''

Bad News and Bank Runs

Bad News and Bank Runs

By MIKE WHITNEY

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The Bush administration is going to be mailing out more "stimulus" checks in the very near future. There's just no way around it. The Fed is in a pickle and can't lower interest rates for fear that food and energy prices will shoot into the stratosphere. At the same time, the economy is shrinking faster than anyone thought possible with no sign of a rebound. That leaves stimulus checks as the only way to "prime the pump" and keep consumer spending chugging along. Otherwise business activity will slow to a crawl and the economy will tank. There's no other choice.

The daily barrage of bad news is really starting to get on people's nerves; it's obvious everywhere you look. Most of the TV chatterboxes have already cut-out the cheery stock market predictions and no one is praising the "impressive powers of the free market" any more. They know things are bad, real bad. That's why the business news is no longer presented like a happy-go-lucky Bollywood extravaganza with undulating females and exotic music. Now it's more like B-grade slasher movie where everyone winds up dead at the end of the show.

A pervasive sense of gloom has crept into the television studios just like it has into the stock exchanges and the luxury penthouses on Manhattan's West End. It's palpable. That same sense of foreboding is creeping like a noxious cloud to every town and city across the country. Everyone is cutting back on non-essentials and trimming the fat from the family budget. The days of extravagant impulse-spending at the mall are over. So are the big ticket purchases and the trips to Europe. Consumer confidence is at historic lows, disposal income is a thing of the past, and credit cards are at their limit.

In the last three months bank credit has shrunk faster than any time since 1948. The banks aren't lending and people aren't borrowing; that's a lethal combo. When credit-creation slows, the economy falters, unemployment rises and the misery index soars. That's why Bush will mail out a new batch of stimulus checks whether he wants to or not; his back is up against the wall.

On Friday, after the market had closed, the FDIC shut down two more banks, First Heritage Bank and First National Bank. Kaboom. Two weeks earlier, regulators seized Indymac Bancorp following a run by depositors. The FDIC now operates like a stealth paramilitary unit, deploying its shock troops on the weekends to do their dirty work out of the public eye and at times when it will least effect the stock market. The reasons for this are obvious; there's only one thing the government hates more than seeing flag-draped coffins on the evening news, and that's seeing long lines of frantic people waiting impatiently to get what's left of their savings out of their now-deceased bank. Lines at the bank signal that the system is broken.

Banks-runs are a shock to the collective psyche. When depositors see a bank run they realize that their money is not safe. People aren't fools; they can smell a rat. When their confidence wanes, it extends to the whole system. Suddenly they start questioning everything they once took for granted. They become skeptical of the institutions which, just days earlier, seemed rock-solid.

Bank runs are a direct hit on the foundation of the free market system. Unchecked, the tremors can ripple through the entire society and trigger violent political upheaval, even revolution. The public may not grasp their significance, but everyone in Washington is paying attention. They take it seriously, very seriously.

An article in the San Francisco Business Times said that the FDIC is worried about the reporting on Internet blogs. They'd rather keep the information about the troubles in the banking system out of the news. Sheila Bair, chairman of the Federal Deposit Insurance Corp., summed it up like this after the run on Indymac:

"The blogs were a bit out of control. We're very mindful of the media coverage and blogs in controlling misinformation. All I can say is were going to continue to stay on top of it. The misinformation that came out over the weekend fed a lot of depositors' fears."

Is that a threat? The cure for a failed banking system is adequate capital and prudent oversight not threats to impartial critics of the system. That's balderdash. Commissar Blair apparently believes that bloggers should be treated the same way as journalists in Iraq, who, if they veer ever so slightly from the Pentagon's "the surge is a great triumph" script, find themselves on the smoky end of an M-16 at some unmarked checkpoint outside Baquba.

Last Sunday, sought Treasury Secretary Henry Paulson tried to reassure the public that the banking system is sound, while bracing people for more trouble ahead:

"I think it's going to be months that we're working our way through this period — clearly months. But again, it's a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation."

Paulson is wrong; the banking system is not sound nor is it well capitalized.

If the rate of bank closures continues at the present pace, by the middle of 2009 their will be restrictions on withdrawals. Bet on it.

So, while your bank still has money and can process your checks, it may be time to pay down debts, pay quarterly taxes and mortgage payments in advance, and think of having money outside of banks (gold, foreign currencies), etc., before your money is inaccessible or even evaporates! Don't think all your investments outside of banks are immune from all this turmoil. For example, money market mutual funds, where Americans have invested $3 trillion, are not covered by FDIC insurance (however, money market accounts offered by banks are covered). Recent losses in some of these money market mutual funds have caused some companies to rush to plug the losses. For example, Legg Mason Inc. and SunTrust Banks Inc., recently pumped $1.4 billion each into its money market funds. Bank of America Corp. has injected $600 million.

As for your checking and savings accounts, recognize you may have five different accounts in the same bank, but the FDIC only insures individuals, not each account, up to $100,000. Putting your money in different accounts in the same bank does not necessarily provide better insurance for your deposits.

Wall Street declines on renewed concerns about health of financials

Wall Street declines on renewed concerns about health of financials

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Wall Street retreated Monday, taking the Dow Jones industrials down more than 170 points as investors' anxiety about the financial sector had them selling stocks across the market. Bond prices rose, the beneficiaries of investors' latest search for a safe haven.

Financials, which had rallied in recent weeks after logging huge declines, suffered Monday from the same worries about souring debt that caused an abrupt end to their run-up late last week. Wall Street is concerned that a further withering of the housing and credit markets will damage bank balance sheets.

Frederic Dickson, chief market strategist at D.A. Davidson & Co., said investors are still trying to get a longer-term view on the stability of the banking industry, particularly the regional banks.

"Corporate depositors and individual depositors are looking at balances at individual financial institutions. I think that's unsettling some of the banks."

On Friday, federal officials closed branches of the 1st National Bank of Nevada and First Heritage Bank N.A. -- owned by Scottsdale, Ariz.-based First National Bank Holding Co., adding to investors' jitters about the ability of some banks to stay afloat.

In midafternoon trading, the Dow Jones industrial average fell 173.18, or 1.52 percent, to 11,197.51.

Broader stock indicators also fell. The Standard & Poor's 500 index declined 17.46, or 1.39 percent, to 1,240.30, and the Nasdaq composite index fell 39.73, or 1.72 percent, to 2,270.80.

Bond prices jumped as investors again sought the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 4.02 percent from 4.10 percent from late Friday.

The dollar was mixed against other major currencies, while gold prices fell.

Monday's pall over the market wasn't solely because of flagging confidence in the financial sector. Investors are also waiting to see whether oil prices' sharp drop of recent weeks has come to an end, or is just pausing. Light, sweet crude rose 85 cents per barrel to $124.11 on the New York Mercantile Exchange.

The troubles that banks are having with bad debt underscore the difficulty that consumers are facing not only in keeping on top of their mortgages but to make their credit card and car payments. That is leading to worries about the broader economy. Investors should get some insight with big economic reports due at the end of this week.

On Thursday, investors will be looking for the first report on gross domestic product for the second quarter. Economists polled by Thomson Financial/IFR expect the Commerce Department to report that gross domestic product rose thanks in part to the government's tax rebate checks.

Then, on Friday, Wall Street will be awaiting the employment report for June. Often such reports are regarded as the most important economic readings of the month because of the insight into the well-being of the consumer. Their health is important because consumers account for more than two-thirds of U.S. economic activity. The latest Labor Department report is expected to show the seventh month of jobs losses and that the unemployment rate ticked higher.

Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams, said investors were selling off financial shares because of their continued concerns about housing.

"They're taking the financials to the woodshed," he said. "Until the housing market stabilizes you're really not going to see the financials stabilize."

Among financials, Citigroup Inc. fell $1.06, or 5.6 percent, to $17.79, while Morgan Stanley declined $1.66, or 4.5 percent, to $35.09.

The other corporate news Monday wasn't enough to support the market. Verizon Communications Inc. said its second-quarter profit rose 12 percent, although revenue came in short of Wall Street's forecasts. The company, one of the 30 that comprise the Dow industrials, made some investors uneasy after customers disconnected their landlines faster than before. Verizon fell 76 cents, or 2.2 percent, to $33.69.

Kraft, the maker of Velveeta, Oreo cookies and Maxwell House coffee, said higher prices helped offset rising commodity costs and listed second-quarter earnings nearly 4 percent. The company rose $1.35, or 4.6 percent, to $30.73 after raising its forecast for the year.

Private equity firm Kohlberg Kravis Roberts & Co. said Sunday it plans to go public on the New York Stock Exchange through a takeover of its Amsterdam-listed affiliate investment fund KKR Private Equity Investors LP.

Tyson Foods Inc., the world's largest meat company, fell $1.04, or 6.4 percent, to $15.19 after reporting a 90 percent drop in its fiscal third-quarter profits because of rising cost of grain used to feed chicken.

Amgen Inc. surged $6.27, or 12 percent, to $60.19 after the company reported positive trial results for its osteoporosis drug candidate denosumab. Late-stage clinical trial results showed denosumab reduced the incidence of fractured vertebrae in post-menopausal women.

Declining issues outnumbered advancers by more than 3 to 1 on the New York Stock Exchange, where volume came to 689.1 million shares.

The Russell 2000 index of smaller companies fell 12.92, or 1.82 percent, to 697.42.

Overseas, Japan's Nikkei stock average rose 0.14 percent. Britain's FTSE 100 fell 0.75 percent, Germany's DAX index fell 1.33 percent, and France's CAC-40 declined 1.20 percent.

How deregulation fuels the global food crisis

Let Them Eat Free Markets

How deregulation fuels the global food crisis

By David Moberg

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In April, crowds of angry Haitians -- reduced to eating mud cakes to staunch hunger -- erupted in deadly protests against high food prices, forcing the prime minister to resign. The price of rice, a staple of the Haitian diet, had risen 16 percent on the world market last year, then shot up 141 percent from January to April.

Around the world, similar riots -- or fears of them -- have pushed governments to restrict exports, reduce tariffs, attack hoarding and take other desperate measures as prices of virtually all major food commodities have spiked -- and often fluctuated wildly.

But in the months since Haitians hit the streets, leaders of the major international financial organizations -- the World Bank, the International Monetary Fund (IMF), the World Trade Organization (WTO) -- as well as the Bush administration and European Union (EU) have responded weakly to the crisis. Mainly, they've issued underfunded appeals for emergency aid and for speedy conclusion of the latest round of WTO free-trade negotiations. For the world's poor, that's like lifting a drowning man out of the water, only to tie weights around his ankles and shove him back in.

When world leaders met in June for a U.N. Food and Agricultural Organization summit, says Steve Suppan, senior policy analyst for the Minneapolis-based Institute for Agriculture and Trade Policy (IATP), a research and advocacy group, "there was an urgent recognition of the food crisis but a more urgent sense of the need to salvage neoliberalism."

And Raj Patel, author of the recent book, Stuffed and Starved: The Hidden Battle for the World's Food System (See review on page 40), adds, "It's preposterous that the Bush administration and EU are pushing us toward precisely the policies that got us into this mess."

Many developments may have triggered the food price crisis, including bad weather conditions (from droughts in Australia to more recent floods in the Midwest), oil price increases, and rising biofuel and consumer demand.

But the current food crisis ultimately stems from over-reliance on deregulated global markets and increasingly concentrated corporate control of an ecologically unsound world food system. Pushing free-market fundamentalism harder will only intensify the fault lines, setting the stage for even more serious crises in the future.

All markets are not the same

Agriculture and food markets aren't like markets for clothes or automobiles. Food is a daily essential, which consumes as much as two-thirds of the income of the poorest half of the world.

Many of those poor people are also peasants who rely on food production for their livelihoods. Farming depends on the whims of nature and slowly adjusted, seasonal plans. Agriculturalists don't merely turn out a product for the market; they play a major role in environmental conservation or degradation and the definition of people's cultures.

What's more, wide disparities in power, financial resources and information exist between the many small producers and the handful of giant multinationals that control grain trade (like Cargill), hybrid seeds (like Monsanto), chemicals (like DuPont), wholesale markets (like Archer Daniels Midland) and retail markets (like Wal-Mart or Carrefour).

Add to that the distortions of markets in favor of the giants through governmental policies and the growing role of huge speculative investors.

"The markets are not perfect, and they can't be," says Sophia Murphy, senior adviser on trade for IATP. "The orthodoxy that drove liberalization of agriculture didn't take account of the way markets don't behave the way a neoclassical model of the economy behaves, and didn't allow for regulation that needs to make up for agricultural market failures."

But the rush to free-market fundamentalism has stripped governments of many of the tools they need -- such as maintaining grain reserves -- to produce price stability, equity, environmental sustainability and widespread human social development.

Haiti is a case in point. In the early '80s, Haiti, though a poor country, produced nearly enough rice for its own population. But when a popular uprising overthrew Jean-Claude Duvalier's dictatorship, the new government turned to the IMF for loans. However, the IMF conditions for loans -- and later "structural adjustment programs" -- included cutting tariffs on rice.

Heavily subsidized rice from the United States flooded into Haiti, bankrupting many small farmers. Then U.S. food aid further undermined Haitian agricultural self-sufficiency.

Haiti now has among the fewest trade restrictions in the Americas, and produces only about 18 percent of its domestic rice needs, making its population -- four-fifths living on less than $2 a day -- extremely vulnerable to global price run-ups. However, Haiti's tiny rich elite prospers as the middlemen in this grain trade.

'Laughing all the way to the bank'

The story is similar throughout the developing world. From roughly 1950 to 1972, the U.S. government opened up markets and created dependency on global grain purchases by providing subsidized, low-cost surplus grain. Governments could pay with their local currencies, rather than dollars, and the United States used that soft-money income to finance its global, Cold War political and military objectives. The governments of developing countries willingly accepted the aid, hoping to pacify their urban poor while keeping wages low for new industries.

At around roughly the same period, the "green revolution" took place, which replaced traditional polyculture -- farming many food products from small plots -- with larger monoculture of crops that are more dependent on fertilizer, purchased hybrid seed and irrigation. The shift raised rice yields per farmer but did not increase pounds of food produced per acre, according to Eric Holt-Gimenez, executive director of Food First, an Oakland-based research and advocacy group. It did, however, concentrate land ownership, move poor farmers onto marginal lands and increase the role of multinational agribusinesses.

Then, in the '80s, World Bank and IMF loans, as well as structural adjustment programs, required that countries not only reduce tariffs and other trade barriers but also dismantle grain reserves, marketing boards and other government institutions designed to stabilize food prices.

Free-trade agreements in the '90s locked in and further dismantled regulations of farming and food markets, especially in developing countries, even as farmers in Europe and the United States were able to keep many of their protections.

As countries tried to repay their foreign debts and buy imported food, they were forced to turn to commercial agriculture, most often large, industrial agricultural enterprises owned by foreign corporations.

With the world supposedly awash in cheap food, there was a sharp decline in international and national investment in agriculture for the local market, including basic research, often under budget-cutting pressure from the IMF.

Also over the past decade, governments, again under IMF prodding, have let grain reserve stocks drop to the lowest point in several decades.

Millions of small farmers were pushed off the land and into cities or into international migration -- 2 million in Mexico alone, since NAFTA was implemented in 1994.

Many developing countries that had earlier fed their own populations became less self-sufficient. In Africa, governments, international investors, and organizations financed the import of grain and the export of specialty crops. But they failed to invest in roads, refrigerated storage and other technology to get local food to urban markets, Suppan says, leaving 40 percent of all food produced to rot in the fields -- depriving urban dwellers of food, farmers of income and nations of potential for homegrown economic development.

Meanwhile, big corporations continue to rake in huge profits. "The industry is not in crisis at all," Holt-Gimenez says. "They're laughing all the way to the bank."

The global grain trade was supposed to take the place of governments with their reserves stored for hard times, such as when an Australian drought in recent years reduced rice and wheat exports to Asia.

"But the private market has very little interest in managing a reserve," Murphy says. "Why would they? They don't care about the price. They don't eat food; they sell it to the highest bidder. They're only interested in getting food before the competition does."

Partial explanations

If world grain reserves had been higher, the recent unusual weather might have had little effect, although climate change does pose a major threat to food production and prices in the long run.

China, which resisted much outside neoliberal pressure, maintained substantial rice reserves and has preserved much greater price stability. But as part of joining the WTO, it relaxed restrictions on soybean imports. The world's largest soy importer now suffers from price spikes and from growing concentration of foreign control over soy oil processing. Yet contrary to the argument that the recent price hike is a result of increased meat (and grain) consumption by the rising Chinese middle class, China has increased production and continues to supply most of its own growing food consumption.

Biofuels have increased demand, accounting for somewhere in the range of 3 percent (the U.S. Department of Agriculture's estimate) to 30 percent (International Food Policy Research Institute estimate) of recent price hikes.

But the impact is complex: Using corn for ethanol, regardless of questions about its wisdom, doesn't boost rice prices -- and has limited impact on meat prices because the waste mash from distilling is used to feed cattle.

Originally encouraged to use up European and American surpluses, biofuels were seen by many farm and environmental advocates as a potential locally controlled and sustainable business. But biofuels now threaten to become a global, corporate-controlled industrial farming and export business that may put fuel for American SUVs in competition with food for poor people in other countries, all while degrading tropical forests.

The boom in energy prices -- oil for production and transport, natural gas for fertilizers -- boosts food costs and is likely to have even greater significance on prices in the future. But that's partly a consequence of free-market failures to properly account for the costs of dependence on cheap oil, including the threat climate change poses to tropical agriculture.

The main culprit: changing futures markets

Yet changes in supply, demand and agricultural costs don't adequately account for the huge price spikes.

An EU study earlier this year concluded that certain food commodities had increased in price three times more than agricultural markets would explain. One possible reason: speculation in commodity markets.

Agriculture futures markets provide farmers and industrial users of farm products a chance to lock in prices for future delivery. This provides a hedge against damaging price fluctuations and helps to set an openly known market price. Small-scale speculators help provide liquidity for such markets.

But deregulation of American commodity markets in both energy and agriculture in the late '80s and early '90s expanded the ways in which companies could make trades without federal regulation.

Other regulatory changes made it possible for large investors, including institutional investors like pension funds, to buy agricultural futures without limits. Congress had imposed such limits to prevent manipulation of the relatively small futures markets -- much as Enron did with California electricity rates.

In recent years, these big investors have increasingly bought futures indexes and other bundled futures products as part of a diversification of their holdings. But these investments behave entirely unlike the traditional futures buying and selling by farmers and grain users.

As hedge fund manager Michael Masters explained to Congress in May, these investors -- with an estimated $250 billion now invested in commodity futures -- tend to hold their investments like a stock or bond, not trade in search of the appropriate market price. They thus skew the price upward, regardless of supply and demand of the real product. As the price increases, more money flows in, pushing the price even higher.

Eventually, such a commodity bubble will burst -- as the housing and dot-com bubbles burst -- but with harsh consequences for real people.

While Congress has begun to close some of the regulatory loopholes, speculation still magnifies real-world food price increases. Once again, free-market fundamentalism creates real economy failures -- taking food out of hungry people's mouths.

The rise of food sovereignty

As long as the food system is organized around free-trade policy and maximizing private profits, Suppan and Murphy argue, it will exacerbate volatility, inequity and environmental damage.

What's needed, says Murphy, is "not just a redistribution of wealth but a new model of agriculture and a new model of consumption."

Food sovereignty advocates propose that people -- local communities and nations -- should have the right to make decisions about their own food regimes, including how much and what to import and export, and whether to use the genetically modified crops that agribusiness pushes as a false solution to the current crisis.

"The food riots are calling for two things," Patel says. "Obviously food, but also accountable government." Under global trade agreements, many governments have lost that accountability to their people.

A new food regime also needs an alternative to current industrial farming, with its ever more costly and damaging practices and growing concentration of profit from feeding the world. This alternative agro-ecological model would rely on the productivity and resilience of small farmers.

Earlier this year, a U.N. commission of 400 agricultural experts concluded that the world needed to shift from agricultural business-as-usual to a more ecological and small-scale approach. To no one's surprise, the U.S. government and agribusiness refused to endorse its recommendations.

How many more food riots will it take to change their minds?


David Moberg, a senior editor of In These Times, has been on the staff of the magazine since it began publishing. Before joining In These Times, he completed his work for a Ph.D. in anthropology at the University of Chicago and worked for Newsweek. Recently he has received fellowships from the John D. and Catherine T. MacArthur Foundation and the Nation Institute for research on the new global economy.

The Suicide Solution

The Suicide Solution

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A few days before Congress passed its Housing Bill, Carlene Balderrama of Taunton MA found her own solution to the housing crisis. Just a little over two hours in advance of the time her mortgage company, PHH Mortgage Corporation -- may its name live in infamy -- was to auction off her home, Balderrama killed herself with her husband's rifle.

This is not the kind of response to hard times that James Grant had in mind when he wrote his July 19 Wall Street Journal essay entitled "Why No Outrage?" "One might infer from the lack of popular anger," the famed Wall Street contrarian wrote, "that the credit crisis was God's fault rather than the doing of the bankers and the rating agencies and the government's snoozing watchdogs." For contrast, he cites the spirited response to the depression of the 1890s, when lawyer/agitator Mary Lease stirred crowds with the message that "We want the accursed foreclosure system wiped out.... We will stand by our homes and stay by our firesides by force if necessary..."

Grant could have found even more bracing examples of resistance in the 1930s, when farmers and tenants used mob power -- and sometimes firearms -- to fight foreclosures and evictions. For more on that, I consulted Frances Fox Piven, co-author of the classic text Poor People's Movements: Why They Succeed, How They Fail, who told me that in the early 30s, a number of cities were so shaken by the resistance that they declared moratoriums on further evictions. A 1931 riot by Chicago tenants who had fallen behind on their rent, for example, had left three dead and three police officers injured.

According to Piven, these actions were often spontaneous. A group of unemployed men would get word of a scheduled eviction and march through the streets, gathering crowds as they went. Arriving at the site of the eviction, they would move the furniture back into the apartment and stay around to protect the threatened tenants. In one instance in Detroit, it took 100 cops to evict a single family. Also in Detroit, Piven said, "two families protected their apartments by shooting their landlord and were acquitted by a sympathetic jury."

What a difference 80 years makes. When the police and the auctioneers arrived at Balderrama's house, the family gun had already been used -- on the victim of foreclosure herself. I don't know how "worthy" a debtor she was -- the family had been through bankruptcies before, though probably not as a result of Caribbean vacations and closets full of designer clothes. It was an Adjustable Rate Mortgage that did them in, and Balderrama, who managed the family's finances, had apparently been unwilling to tell her husband that their ever-rising monthly mortgage payments were eating up his earnings as a plumber.

Suicide is becoming an increasingly popular response to debt. James Scurlock's brilliant documentary, Maxed Out, features the families of two college students who killed themselves after being overwhelmed by credit card debt. "All the people we talked to had considered suicide at least once," Scurlock told a gathering of the National Assocition of Consumer Bankruptcy Attorneys in 2007. According to the Los Angeles Times, lawyers in the audience backed him up, "describing clients who showed up at their offices with cyanide, or threatened, 'If you don't help me, I've got a gun in my car.'"

India may be the trend-setter here, with an estimated 150,000 debt-ridden farmers succumbing to suicide since 1997. With guns in short supply in rural India, the desperate farmers have taken to drinking the pesticides meant for their crops.

Dry your eyes, already: Death is an effective remedy for debt, along with anything else that may be bothering you too. And try to think of it too from a lofty, corner-office, perspective: If you can't pay your debts or afford to play your role as a consumer, and if, in addition -- like an ever-rising number of Americans -- you're no longer needed at the workplace, then there's no further point to your existence. I'm not saying that the creditors, the bankers and the mortgage companies actually want you dead, but in a culture where one's credit rating is routinely held up as a three-digit measure of personal self-worth, the correct response to insoluble debt is in fact, "Just shoot me!"

The alternative is to value yourself more than any amount of money and turn the guns, metaphorically speaking, in the other direction. It wasn't God, or some abstract economic climate change, that caused the credit crisis. Actual humans -- often masked as financial institutions -- did that, (and you can find a convenient list of names in Nomi Prins's article in the current issue of Mother Jones.) Most of them, except for a tiny few facing trials, are still high rollers, fattening themselves on the blood and tears of ordinary debtors. I know it's so 1930s, but may I suggest a march on Wall Street?

Struggling college students turn to food banks

Struggling college students turn to food banks

By WHITNEY MALKIN

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Just blocks from the University of Washington, a line of people shuffle toward a food pantry, awaiting handouts such as milk and bread.

For years, the small University District pantry has offered help to the working poor and single parents in this neighborhood of campus rentals. Now rising food prices are bringing another group: Struggling college students.

"Right now, with things the way they are, a lot of students just can't afford to eat," said Terry Capleton, who started a Facebook group called "I Ain't Afraid to be on Food Stamps" when he was a student at Benedict College in South Carolina.

Some of the students are working their way through college with grants, loans and part-time jobs. Others are just reluctant to ask parents for more money.

"More and more, it's just the typical traditional student, about 18 to 22, that's feeling this crunch," said Larry Brickner-Wood, director of the Cornucopia Food Pantry at the University of New Hampshire.

"There's definitely been an increase in usage and demand. We're seeing more and more students that have never used the pantry before."

In the past year, the price of groceries has jumped nearly 5 percent, the highest increase in nearly two decades. The cost of some staples has shot up by more than 30 percent.

At the University District pantry in Seattle, demand has risen roughly 25 percent this year. About 150 students visit each week during the school year.

Membership in Capleton's Facebook group has steadily climbed, too, and sparked other online groups with names such as "I'm in College and I got on Food Stamps."

"A lot of students can't call their mom every day to ask for that extra fifty dollars," said Capleton, 24. "They're on their own."

Qualifying for aid at community food banks is usually easy. Most of the charities just require users to show identification proving they live in the area.

The Community College of Denver runs its own food-assistance program, which has seen demand double in the past year.

"It's the highest I've ever seen," said Jerry Mason, the school's director of student life. "Our assumption is it's because of the high price of food."

In response to demand, the school doubled the pantry's $3,000 annual budget.

Food stamps are distributed through a Department of Agriculture program administered by the states. But the agency does not track whether applicants are enrolled in college, so the number of students is unknown.

Students generally are eligible for food stamps if they qualify for a state or federally funded work-study program; work at least 20 hours per week; have a child under the age of 12; or are taking employer-sponsored job training classes.

Deirdre Wilson, a junior at Francis Marion University in Florence, S.C., applied for food stamps in November because her paycheck from a work-study job didn't stretch far enough to cover her expanding grocery bill.

"Before, when I lived in the dorms, I was on the meal plan," the 20-year-old said. "Now that I'm in the apartment, I have to pay for food, and I have to pay my cell phone bill. I don't make enough to pay for both."

John Camp, lead analyst for Washington state's food stamp program, said the requirements for assistance disqualify many students and dissuade others from applying. People ages 18 to 25 make up roughly 8 percent of the state's food stamp users.

In New Hampshire, some students are reluctant to apply for government aid.

"There is a stereotype that well, if they're in college, they can afford to eat," said Brickner-Wood, the food pantry director. "But there are some students who have hardly any disposable income, and because of that, the food budget suffers. They either eat really badly, or they just don't eat enough."

Standing outside a campus market, University of Washington junior Doug McManaway wonders how he will afford to pay for groceries through the summer term.

"I'm already really poor and on a really tight budget," he said. "I have to pay rent, and after that there isn't much left over."

With just $100 left to last him through the end of the month, the 20-year-old said a food bank might be his best option.

"It kind of grosses me out," McManaway said. "But if my parents say, 'No, we're not going to give you any more money,' it may be a last resort."

___

On the Net:

USDA Food Stamps: http://www.fns.usda.gov/fns/

Facebook food stamp group: http://tinyurl.com/6j28gv