CRE Has Their Hand Out

According to the WSJ this morning we find that commercial real estate now needs free money.

Big property developers are asking to be included in a new $200 billion loan program as a surge in commercial mortgages comes due.

These firms managed to leverage up too much and now are in a world of hurt. For some property developers extensive use of leverage was the business model. The (poor) choices by the management needs to run its course. Bankruptcy moves the underlying assets to the hands of people who are more competent business managers. If bailouts are given then we, as taxpayers, are allowing profits to flow to the owners in the good times while the loses flow to the taxpayers.

This is not capitalism.

The tacit moves towards the nationalization of so many industries is making me apprehensive. This is the sure way to establish more government intervention and inefficiency. An extreme example is North Korea of what happens when the government manages resource allocation (I don't expect that for us). What this means is in the years ahead we can expect much weaker economic growth as resources are allocated poorly. The problem with this outcome, lower growth, is that you can't see the growth we didn't get.

Also expect to see substantial increases in both interest rates and inflation in the years ahead especially as more bailouts (money printing) comes. This could have a serious cost to our currency as the world's reserve currency. The temptation to print away all this borrowing by the Fed is going to be strong.

The more the government bails the more drag that puts on future growth. Keep in mind that the government cannot create jobs the way private business does. The simplified explanation is that any money the government spends must come from any of three sources which means a decline in assets for investment elsewhere. If they tax income, it comes from the productive class (aka the entrepreneurs) and results in more asset hiding and less business creation/investment. Borrowing by the Treasury takes money from what may have gone into other investments, say corporate bonds, which may have expanded plants and equipment. The last possibility is "printing" money or credit which causes inflation. High inflation is a tax on everyone but particularly those with least access to money and credit. This is much to simple an explanation of the impact but hopefully your further research will help the understanding of the bailout cycle and it's effects, intended and unintended.

17 Billion is Not Enough

The auto suppliers are already clamoring for their own bailout! The ink for the Chrysler/GM bailout is not even dry yet.

U.S. auto-parts suppliers want aid from the federal government, now that General Motors and Chrysler LLC have gotten approval for a $17.4 billion lifeline.

"The next critical phase is the supplier community, which is facing the exact same financial crisis as the manufacturers," said Neil DeKoker, CEO of the Original Equipment Suppliers Association in suburban Detroit. "We're requesting assistance from the presidential transition team."

The game to play is "Who gets the bailout?" Where the player try to guess the industry or company seeking a bailout next. My pick is the states and municipalities are next but I may be early on that. Their bailout will come in the form of the Pelosi stimulus package that Obama supports.

Too Big To Fail

I posit that if all of these firms being bailed out are all too big to fail (AIG, Citi, GM, more coming) then should there not be effects to parcel these firms into smaller units?

Ludwig Von Mises, Socialism, p45

If the State takes the power of disposal from the owner piecemeal, by extending its influence over production... then the owner is left at last with nothing except the empty name of ownership, and property has passed into the hands of the State.

Addicted to Low Interest Rates?

So the Fed is slashing interest rates to try and "stimulate" our way out of this recession, and it's not completely impossible that we'll see a Fed Funds Rate of zero percent. Then comes the news that the incoming administration wants to have the Treasury Department throw its financial support behind Fannie and Freddie, with the stated goal of lowering 30-year mortgage rates to an amazing 4.5%. Now the EU and the Bank of England have slashed their rates as well, by 0.75% and a full 1% percent, respectively. The Bank of England's rates are now at their lowest level in over four centuries.

I'm guessing that the unstated goal of all this rate-slashing is to "re-inflate the bubble" ... political and financial leaders are suddenly a lot more worried about deflation than they are about inflation. And with leverage controls certain to be tightened up in the near future (and rightfully so), lowering interest rates is the only way to prevent a collapse in the global money supply. But now I'm wondering two things. One, doesn't this mean we're trapped ... essentially, "addicted" to low interest rates? They're being pushed to such a low level that they're losing their effectiveness as a macroeconomic control. And two, is this a bad thing? Or at the very least, won't it mean a major shift in the way money, capital, and debt is allocated?

The Fossils Know How to Save the Dinosours

So Detroit can't make it without a bailout.  Congress proposes voting on a rescue once they see the Detoit automakers' magnificent plan before December's decision to bail them out.  This implies that Congressional career politicians with less business experience than the average Americans know what a good plan is.  First Daimler and then  Cerberus bought Chrysler and could not make it work.  This firmly cements to me, it is just not plausible that Congress would know a good plan from a bad.  Pardon my cynicism but their track record is less than admirable.  

The Ant and the Grasshopper

Imagine your political leader proposes setting up a system that rewarded the people who squandered everything and penalized those who saved? Sounds like a real winner doesn't it?

If you were one of the to be penalized, how quickly would you sign up for such a program? How long would you stay in? You would be better advised to pursue the path of the squanderer. No penalty for risk since you can lay the cost of failure on those foolish enough to expect a raining day. I would not expect a program like this to last very long and I truly hope we stop before the penalties get too high.

Where Do I Sign Up?

All these great loan modification programs and I keep getting turned down. I was reading about this great program from the FDIC about loan principal forbearance and reduced interest rates. I was thinking, "That sounds fantastic!". So I was looking for the registration link to get my deal but you can't but help to notice all the criteria for this special deal. Let us go through those criteria:

* Eligible Borrowers: The program will be limited to loans secured by owner-occupied properties.

CHECK

* Exclusion for Early Payment Default: To promote sustainable mortgages, government loss sharing would be available only after the borrower has made six payments on the modified mortgage.

OK Loss sharing after 6 payments - ok but I plan on paying so NOT APPLICABLE


* Standard NPV Test: In order to promote consistency and simplicity in implementation and audit, a standard test comparing the expected net present value (NPV) of modifying past due loans compared to the strategy of foreclosing on them will be applied. Under this NPV test, standard assumptions will be used to ensure that a consistent standard for affordability is provided based on a 31% borrower mortgage debt-to-income ratio.

OK have better then a 31% debt-to-income ration - GOOD


* Systematic Loan Review by Participating Servicers: Participating servicers would be required to undertake a systematic review of all of the loans under their management, to subject each loan to a standard NPV test to determine whether it is a suitable candidate for modification, and to modify all loans that pass this test. The penalty for failing to undertake such a systematic review and to carry out modifications where they are justified would be disqualification from further participation in the program until such a systematic program was introduced.

This applies to servicers so NOT APPLICABLE

* Reduced Loss Share Percentage for "Underwater Loans": For LTVs above 100%, the government loss share will be progressively reduced from 50% to 20% as the current LTV rises.1 If the LTV for the first lien exceeds 150%, no loss sharing would be provided.

CHECK - my LTV is well less than even 100% - this sure would be a horrible deal for the government (i.e. taxpayers) if they were crazy enough to take on loans with LTV rations even near 100%. Government isn't that stupid right?


* Simplified Loss Share Calculation: In order to ensure the administrative efficiency of this program, the calculation of loss share basis would be as simple as possible. In general terms, the calculation would be based on the difference between the net present value of the modified loan and the amount of recoveries obtained in a disposition by refinancing, short sale or REO sale, net of disposal costs as estimated according to industry standards. Interim modifications would be allowed.

Again, this applies to servicers and I plan on paying so NOT APPLICABLE

* De minimis Test: To lower administrative costs, a de minimis test excludes from loss sharing any modification that did not lower the monthly payment at least 10 percent.

Sweet, looks like I am going to be getting at least 10%. That sounds to good to be true!

* Eight-year Limit on Loss Sharing Payments: The loss sharing guarantee ends eight years of the modification.

Well in eight years - unless you modified loans in Las Vegas, California, or Florida how could there even be a need for loss sharing? NOT APPLICABLE

So, where is the sign up link? Weird! No Link. Hmmm, look at the "fine print" - you have to be 60-90 days past due! I am not past due. What a crappy deal for the people who pay their mortgages and anyone crazy enough to pay their taxes.

This is insane even for the government.

The FDIC thinks it is going to take on 2.2 million crappy loans and only lose 5%. Those sure are favorable estimates considering the median price is (was) well over $200,000. This is a great deal - for the imprudent.

And the really annoying thing is, that as a taxpayer, I get stuck with the (woefully underestimated) loss sharing.

GM Bankruptcy Deception

The misinformation defending the huge bailout is that 2.5 million direct and indirect jobs will be lost. That is absurd!

The net purchase of vehicles is not going to change - besides cyclical change. The change will be where (and who) will build the cars. It is completely ridiculous to presume that anywhere near 2.5 million jobs will be lost and never return leaving people starving. Unemployment in a location dependent on one industry is going to be chaotic. Yes people will have to relocate or find new careers.

Production assets, brands, engineering talent, management talent, production line experience, and resources would be (re)allocated to more efficient producers and/or producers with better product mixes. Will there be dislocation, certainly, but that has been going on since the 70's in the auto industry. Places like Michigan and Ohio have watched this industry decline around them for 30 years. Yet they have not adapted there policies or re-tooled there economic policies.

All of the "lost" jobs will not occur in one geographic location either. It will be spread around from Canada to Michigan to California. Bankruptcy protection or liquidation will result in assets being purchased for more productive uses or even alternative uses. The woes of the American manufacturers is the direct result of poor management and stifling labor contracts. Nothing more.

Crappy Union Jobs

Unionization, in the long run, makes for a terrible way to be employed. A non-senior union employee has much to fear because they know they are not going to find a replacement job similar pay. The reason is simple - in a competitive labor market those very high wages are bid down by the party seeking the job. Most people don't want to lose their job, but losing it is not the end of the world because they are paid MARKET wages. They will find a replacement job with a substantially similar wage. The union employee, in an industry such as the auto industry, has very much to fear indeed.

The Day After

Well, in the words of Kent Brockman ... "I, for one, welcome our new Socialist Overlords." The election is finally over, which is reason enough in itself to be thankful. And the majority has spoken. Well, somebody once described democracy as three wolves and a sheep sitting down and voting on what to have for dinner. To get a little advance peek at what kind of tax hikes to expect next year, read this story about HENRYs ... as in, "High Earner, Not Rich Yet". Or as Obama would say, "Greedy Rich People who don't pay their fair share." That used to mean anybody who makes $250,000 a year or more, although that threshold seems to be floating downward as of late. In case this sounds like sour grapes, it's highly likely that McCain would have raised taxes too; he's certainly not going to fight against them, in his eagerness for a "bipartisan" Senate. Might be a good idea to read up on Limited Liability Companies. Just because I'm going to get plucked like a Christmas goose doesn't mean I need to make it easy for them. Think I'm paranoid? ... don't assume that your 401(k) is safe, either.

Be The Mac

Well, I finally bought my first computer from Apple - not counting my very nice iPod Touch. I got a MacBook which had an nice upgrade announced Tuesday. At $1300, it is "expensive" for a machine with such a small screen and 5400RPM hard drive and only 2GB of RAM. My big fear was really the screen and the keyboard. I have a friend and (now fellow) Mac owner who bought a new MacBook Pro before the new ones because he disliked the "chicklet" keyboard on the new ones.

Sometimes you know in just a few minutes when your inner voice was correct and you just made an extremely expensive MISTAKE.

Well that turned out to not be the case - all I can say is WOW! This is by far the best laptop I have ever used. Half is the hardware, half is the software. Previously I believed Apple should sell just OS-X but without support to allow non-Apple owners to use it. I have turned 180 degrees on the belief. By making the hardware and controlling the decisions of what to support Apple creates a competitive, superlative product. My work computer is a Dell Precision M70 - a $2500 machine 3 years ago - big, powerful, overall a good machine. I had an mailer from Dell that I threw away today because I don't see myself buying one anytime soon.

Part of the problem for Dell was *cough* Vista - jeez what a steaming pile that is. While I am sure Windows 7 (Vista 2) will be a lot better - why wait? Why take your chances? Unless you require a Windows specific application I can't see going with Windows until they become competitive. Windows is a decent OS, durable, workable like a new Chevy on a smooth road - it works fine in the beginning but things start to go wrong with age. Windows, like the Chevy, has problems down the road. How many times have you heard, "try re-installing Windows"? For me, the NTFS file system slows with time and de-fragmenting (over and over) doesn't help. Having used my Mac for 2 days, Vista lost what little pizazz it had. The Apple product designers and software engineers are laudably anal.

I just want to say WOW and nice job to Apple.

Friends of Mozilo Powers Activate

According to Bloomberg, the Federal Reserve is going to buy commercial paper at below market prices. And not 10 basis points either, the fed is going to buy commercial paper at 110 basis points below the market rates. Why? Really! WHY?

On October 10th GE's CFO Keith S. Sherin said GE Capital has been able to issue commercial paper without interruption. The Fed is distorting the commercial paper market and will drive out real risk sensitive investors. Maybe the investors are pricing commercial paper appropriately - more likely than the Fed. This entire boondoggle looks like a big power grab by the politicians and some payback for the "Friends of Mozilo" in my opinion.

Inflation or Deflation

As MindLikeWater commented in the post below, currently the economy is contracting (deflating) the money supply much faster then the bailouts can be printed. As mentioned, credit is being withdrawn at a rapid pace and new credit is being created at a very slow pace. This contraction exceeds the speed of the governments ability to create it (bailouts, rescues, deficit spending, and interest on reserves, etc.).

The detrimental effects of this (any?) government intervention is that they shoot late and overshoot - substantially. The money/credit creation is happening and soon it will exceed the credit contraction. This will be the cause of the inflation. Inflation is not caused by high prices in fuel or commodities or whatever, it is caused by an expansion of the money supply. As Milton Friedman said "Inflation is always and everywhere a monetary phenomenon."

Deflation or Inflation?

I'm trying to educate myself on macroeconomic principles, because I believe they're more useful in making long-range predictions. And in light of our nation's recent bout of economic Tourette's, I'm trying to figure out what the long-range implications will be. At first glance, this seems simple - Washington politicians are wallowing around in more pork and corruption than ever, spraying trillions of dollars around as magic balm to soothe all our ills - sounds like textbook inflation, right? A few hundred billion here, a half trillion there ... what, didn't work? Banks still jittery? Here, have another $300 billion. The printing presses at the Fed must be smoking by now. Weimar Germany, here we come!

... but not so fast. The actual size of the Money Supply is shrinking, which is considered a classic symptom of deflation. After all, most money isn't printed, it's created electronically - by banks, allowing them to make loans out to businesses (and each other). The Fed's low-interest-rate policy of the past seven years created an environment of "easy money", and a swelling of the money supply, which led (in part) to the inflation in prices of things like houses. Now that banks aren't lending, and their obscene leveraging will likely be ratcheted back from 40:1 to something like 12:1, the amount of money in the system is going to decrease in the near future.

I'll continue to try and puzzle this out, but I'm open to comments, opinions, and education. What's going on? Inflation or Deflation?

USA - the socialist's paradise

The Conservative Party has just won re-election in Canada, actually adding seats to strengthen the position of Prime Minister Stephen Harper. While nobody's going to mistake him for Ronald Reagan, Harper is seen as a tax-cutter and a friend of the private sector. Actually, in each of the G-7 countries, politics has drifted to the "right" in the past few years - leading to the election of Nicolas Sarkozy in France, and Angela Merkel in Germany. Well, I should say, each of the G-7 countries save one - the United States. We're either going to elect a gang of enthusiastic progressives led by a Cult of Personality, or a tired old Senate hack who never misses a chance to trash the free market and kick small-government advocates in the hoo-hahs. Again, no matter who wins, it's quite possible that by this time next year, the United States will have the highest corporate tax burden in the Western world - and one of the highest personal tax burdens too (heck, even Sweden is cutting taxes these days). Didn't somebody stage a Tea Party in Boston once, because of something like this?

Isn't this what started this mess in the first place?

The markets enjoy their biggest one-day rally in history! Panic selling is replaced by panic buying! And what's the source of this sudden enthusiasm? A hastily slapped-together mega-plan, concocted over the weekend by the G-20 leaders, to drastically increase the role of government in every part of the world financial system. I'm still trying to sift through the details, but it seems like - at least in the short term - the government is going to "invest" $250 billion in tax money (*your* tax money - hey, where do you think it comes from?) into the financial system. And you can be sure this money will come with strings attached. No doubt the government will become intimately involved in everyday banking and business transactions to bring "stability" and "confidence" to the system. And yet everybody seems to love it. Why not? The government has just promised banks and businesses that it will magically prevent any of them from ever losing money on bad loans again. What a sweet deal! The whole concept of "risk" is so passe. Now the banks can just toss out that $250 billion in new loans to get the economy moving again. Oh, and I'm sure there won't be any political influence on who gets those loans. No, that would never happen. I think, in thirty years or so, our kids will look back at the past two weeks (provided they still teach history in 2038) and describe it as a Takeover, or even a Coup, of the world's free markets.

Oh, well, free enterprise was nice while it lasted. Embrace the future, Comrades. And by the way, with this recent spending orgy, the national debt has just added an extra digit, racing past $10 trillion with its foot on the accelerator. And that's not counting the impending nightmare of entitlement promises - those Boomers are just starting to cash their Social Security checks. As I said before, it's all well and good to raise a pint as we gather for Capitalism's wake - but I hope to also come up with strategies for the future. One thing I plan to do is research various western European economic systems, especially Britain, France, and Germany. They're further along the decaying spiral of cradle-to-grave Welfare Statism, and I think they'll give us clues as to what to expect in America in ten to fifteen years. Here's an easy call: no matter what Obama - or for that matter, McCain - is saying in their campaign ads, your taxes are going UP next year. That's simple math. The government needs a LOT more money now. A LOT more.

Misery Loves Company

Well, I've been generously invited by the illustrious owner to be a guest poster here at Conspicuous Musings. I'm certainly not an Economist, nor do I play one on TV, but I am an amateur student of history. And, unfortunately folks, we are living in interesting times, and not in the good "First-Moon-Landing" kind of interesting. The economic crisis that is currently unfolding - which should not be coming as a surprise, to anyone who's been paying attention since last August's liquidity shock - is going to drastically alter the role that government plays in our lives. And, since my political philosophy can be summed up by "leave me alone and stop stealing my money", you can imagine that I do not expect the government to make things better.

Now, while I am no lover of the Democratic Party, the truth is that the Republicans are shared authors of this mess. For every Barney Frank, there's a Ted Stevens. Right now, this is no party of fiscal responsibility in Washington - just two candidates promising to buy us all a pony, paid for with somebody else's money. Asking me "who do you want to win the election" is a little like asking me "would you rather get beat over the head with a pipe wrench, or a nail-studded 2x4?" In fact, since the last thing that the Internet needs is another partisan pie-throwing website, I intend to take the stance that party affiliation is becoming increasingly irrelevant. It's foolish (and a little sickening) to listen to Obama and McCain boasting about steps they're going to take to "fix" the economy, as if it's a malfunctioning water heater in the basement of the White House that Bush is too lazy to fix. The economy is an extremly complex, global network of interactions, with millions of variables, billions of actors, and trillions of transactions, each piece affecting the whole in a non-linear manner. Voting for a politician because he says he can fix the economy is like picking a prom date because he says he's going to make it sunny and 75 degrees on Saturday.

So hopefully, I'll add something of value here, and hopefully in a way that'll make you laugh (and roll your eyes). I'll also try to post useful advice for the future, because that's something I'm trying to find out for myself. Yes, the economy, and our freedoms, are likely to degrade over the next ten to twenty years. But that doesn't mean we should all just passively sulk in our couches and accept the end of Western Civilization. If history is any guide (and I believe it is), a prepared individual will not only survive, but will thrive, in times of crisis. It's the poor saps with their hands in their pockets, waiting for the Government to save them, who are going to get flattened. Remember, in the worst year of the Great Depression, the unemployment rate reached 25%. Which is another way of saying, three out of every four people still had a job.

Plunging of the Baltic Dry Index

I am not the first to notice this as a quick Google search will confirm, but declining consumer demand is probably not causing the plunge in the Baltic Dry Index (BDI). It may be much worse, though the demand reduction is certainly accelerating.

The credit lines cargo carriers use to purchase fuel and the Letters of Credit buyers/sellers of that cargo use to verify their financial worthiness could be hindered by the credit contraction. If Letters of Credit or short-term loans cannot be secured, then shipping does not happen. This could be more a symptom of supply disruptions then of demand destruction.

Let us hope the credit markets for non-financials don't come unglued.

Steps to a Depression

Well, according to Bloomberg the federal government is going to force the purchase of bad mortgages by Fannie Mae and Fredie mac. Where are the fiscally responsible in government? Certainly there will be pressure to not just buy the bad debt but to perform more social engineering. Wait until Congress suspends or slows foreclosures. Non-performing loans will skyrocket.

The shallow (feel good) analysis is this will support the institutions with bad mortgages, help borrowers, and prop up the housing industry. Sounds good but it won't work. It will certainly appear to work. The unintended consequences will be people who have financial problems will support unsecured loans (car, credit card) and not pay the mortgage. This also makes homeowners upside down. If there is equity sharing, then at sales time the non-supported (responsible) borrower will build wealth substantially faster. Supported homeowners will also be less mobile since they will have covenants attached to there equity (if any). At least some of these borrowers will be very house poor even after discounting. The worst incentive to all this is that the prudent borrower (and taxpayer) supports the imprudent. Schemes like this have serious long term negative implications.

Let the loans fail. This is how the economy clears the excess and will start allocating resources away from bad and toward the good institutions. This policy distorts (capital) resource allocation into the poor performing and away from the (potentially) well performing.

Propping lenders and borrowers with taxpayer money is foolish. We tried this in the 1929 recession, did that turn out well? Nope, bad policy exacerbated the depression. Maybe we could look at Japan? Nope, zombie banks, zombie companies, and a lost decade. Ben Bernanke (Chairman of the Board of Governors of the U.S. Federal Reserve ) is a student of the depression yet we are heading down the path towards one.

Unintended Consequences

Unfortunately, the free market is going to take the blame for this economic fiasco when interventionist government policies and lax regulation were significant contributors. The federal and state governments have been trumpeting their success in recent years of record high home ownership rates. This was a government fix and certainly at least part of the cause of our current situation.

Regardless, the government is under tremendous pressure to "fix" the deleveraging that the economy is experiencing. Nearly all government fixes, well intentioned or not, have less than desirable outcomes.

We'll look at just one policies I found reading Housing Wire.com. The policy is basically a foreclosure tax in New Jersey I ran across.

New Jersey Looks to Charge Lenders $2K Per Foreclosure

New Jersey is going to suffer in several ways, first, like nearly all "taxes" this one will ultimately be passed through to home buyers, particularly below prime. For the lenders clawing for survival, this could be the push off to bankruptcy resulting in the destruction of weak businesses at the margin. In Addition, Lenders will substantially tighten lending standards, avoiding the risk of default from home buyers buy requiring higher down payments, more fees and higher rates.

Fewer of the people this is designed to help will have access to mortgage credit. In the longer team, once this financial disaster unwinds some lenders will not expand or open in New Jersey. So, the unintended consequences are reduced number of servicers in the long run, tighter lender standards, higher down payments, higher interest rates and higher fees.

To many this seems obvious, but to many this isn't. New Jersey residents will never see the servicer that didn't open shop and they won't necessarily notice the higher costs for mortgages in there state since all lenders will pass this on. For the servicer's that don't survive some will even cheer. Over time mortgages will be a little more expensive in New Jersey.

Bailout Approval Coming

The massive taxpayer funded wealth transfer will be approved sometime this week. Why am I so prescient? First congress was expected to adjourn this week. Second, this is an election year, many congressional office holders feel the necessity of campaigning for their job. Thinking through such a massive proposal seems to be, at best, secondary.

I hope to be proven a bad predictor of congressional action.

And They Can Save Us Now?

The very same "experts" who didn't see the crisis coming (though warned), couldn't prevent it when it started, can't stop it once rolling, now tell us that if we jam through questionable legislation that will save us!!!???

Bernanke said so to the banking committee:

``I believe if the credit markets are not functioning, that jobs will be lost, the unemployment rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover,'' Bernanke told the Senate Banking Committee today. ``My interest is solely for the strength and recovery of the U.S. economy.''

My take, I believe credit markets are functioning, that jobs will be lost, the unemployment rate will rise, more houses will be forclosed upon, GDP will contract, BUT THE ECONOMY WILL BE ABLE TO RECOVER.

The last time we jammed through a piece of legislation it was called The Patriot Act. I didn't care how that turned out.

It is 30's All Over Again

From Bloomberg

Federal Reserve Bank of New York President Timothy Geithner said the central bank should play a prominent part in regulating financial institutions and ensuring market stability after the biggest credit crisis in decades.

Let me translate, the crisis we had a big hand in creating needs an even bigger hand to be helped.

Give me a break!!!!!

Excuse me, but how are you going to fix this? More regulation, socializing loses? The fix is to unwind bad debt - not with taxpayer money. Stop using FRE and FNM for origination (at least only originate under ever stricter standards) , and wind them out of business when the last bond holders are paid back. Cuba is a great example of how well nationalization works - we are trying to emulate them.

What Dodd Didn't Know

Senator Dodd didn't know he would be in such a pickle. Dodd is either incompetent or he is unethical - in my opinion. If he can't recognize an extremely favorable deal on a Countrywide mortgage he is incompetent and not fit to be the BANKING committee chair. Worse, if he was unethical and took such a deal knowingly, then he should resign from the Senate.

I could rail on the softball questions Mozilo received or question who wrote the bank bailout bill winding through Congress but those have been sufficiently covered. At a minimum, the senator should resign from the banking committee that he chairs.

My wish is for the good people of Connecticut to elect a new Senator to serve their state and the people of the United States.

Jakarta Commons HttpClient Digest Authentication

Working with Apache Jakarta HttpClient to call a site to get protected content can be easily achieved. The example below includes both setting up your Apache Web server (2.0) to use .htaccess to a protected file. The example presumes an example Java client that will make a GET request to an Apache HTML file protected using .htaccess and Digest Authentication.

The protected resource:
http://localhost/fishsticks/hello.html

Apache Version:
Apache 2.0 on Fedora 8

Setting up Apache for .htaccess
Configure the httpd.conf file to allow .htaccess by editing the section that looks like:
#
# AllowOverride controls what directives may be placed in .htaccess files.
# It can be "All", "None", or any combination of the keywords:
# Options FileInfo AuthConfig Limit
#
AllowOverride None


Change the AllowOverride directive to be
AllowOverride AuthConfig


And then restart the Apache httpd (the web server). The httpd.conf on Fedora is located in /etc/httpd/conf directory and on windows it is generally on C:\Program Files\Apache Group\Apache\conf (or something close to that).

Next go to the content directory of the web server and add the .htaccess file. In my example, Apache serves files from /var/www/html directory. Therefore, I create the fishsticks directory, create a simple hello.html file that says "fishsticks". Make sure you can view this page in the browser. Simple go to http://localhost/fishsticks/hello.html. You should see the word "fishsticks" in your browser.

Creating the .htaccess File
The .htaccess file goes in the fishsticks directory that Apache serves content from (/var/www/html/fishsticks).

The .htaccess file needs to contain:
AuthType Digest
AuthName "realm"
AuthUserFile /usr/local/apache/passwd/digest
Require user corbin

The password file also needs to be created. This is done using the htpasswd utility, for example:
htpasswd -c /usr/local/apache/passwd/digest realm corbin

You will be requested to type and re-type the new password.

Adding password for corbin in realm realm.
New password:
Re-type new password:

Now you will have the file /usr/local/apache/passwd/digest which contains the following line:

corbin:realm:a8f9dac51f13bb1a0eb9ffe3aea281d6

Restart the Apache httpd and try to hit the url http://localhost/fishsticks/hello.html and you should be presented with an authorization dialog from your browser. This a controlled by the browser so there is not much you may do to make it pretty.

If you authenticate using username "corbin" and password "dallas" you should see the fishsticks page. If you fail authentication you will get a http 401 status page.

The code for the test client is:
package com.mindlinc.rx.integration.agent;

import java.io.IOException;

import org.apache.commons.httpclient.HttpClient;
import org.apache.commons.httpclient.UsernamePasswordCredentials;
import org.apache.commons.httpclient.auth.AuthScope;
import org.apache.commons.httpclient.methods.GetMethod;

public class TestAuthentication {

/**
* @param args
*/
public static void main(String[] args) {

HttpClient client = new HttpClient();
UsernamePasswordCredentials upc = new UsernamePasswordCredentials("corbin", "dallas");
AuthScope as = new AuthScope("localhost", 80, "realm");
client.getState().setCredentials(as, upc);

try {
GetMethod gm = new GetMethod("http://localhost/fishsticks/hello.html");
int status = client.executeMethod(gm);
System.out.println("Response Status: "+ status);
String result = gm.getResponseBodyAsString();
System.out.println(result);
} catch (IOException e) {
e.printStackTrace();
}
}

}


If you change the username or password the returned status will be 401 instead of 200 when you successfully authenticate.