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Housing Prices Will Drop Another 20% In The USA

GARY SHILLING: And Now House Prices Will Now Drop Another 20%

Gary Shilling, A. Gary Shilling & Co. | Dec. 29, 2010, 9:13 AM | 62,540 |  31

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Image: A Gary Shilling & Co.

In October, Gary Shilling of A. Gary Shilling & Co., predicted that house prices would fall another 20%.

In the two months since, house prices have resumed their decline.  Below, Gary outlines why he thinks the recent drops are just the beginning.

Gary is offering a special discount on his research service for Business Insider readers. To learn more, please visit Gary's web site or call 1-888-346-7444. Please mention Business Insider.

Housing: Great Expectations vs. Reality

Last spring, many believed that not only was the housing collapse over but that a robust rebound was underway. Investors were crowding into foreclosed house sales and bidding up prices in California, often the bellwether state for new trends. The tax credit of up to $8,000 for new homebuyers that expired in April spurred buyers and promised to kick-start housing activity nationwide. TheHomeAffordable Modification Program was trumpeted by the Administration to help 3 million to 4 million homeowners with underwater mortgages by paying lenders to reduce monthly payments to manageable size and then paying homeowners to continue to make those payments.

But then a funny—or not so funny—thing happened on the way to housing recovery...

Yes, with mortgage rates so low, houses look "cheap". And for a while this seemed to be helping...

Image: Gary Shilling

With low mortgage rates and collapsed house prices, the National Association of Realtors’ Housing Affordability Index had leaped to all-time highs.

Earlier this year, sales of existing homes skyrocketed (temporarily)

Image: Gary Shilling

The revival of home sales early this year proved to have less follow- through after the tax credit expired in April than did the previous expiration last November. Existing home sales subsequently fell to a new low, so the tax credits had only “borrowed” sales from future months with no lasting impact.

And housing starts finally bottomed

Image: Gary Shilling

And house prices seem to have bottomed, too. But...

Image: Gary Shilling

Don't forget about unemployment. Old measures of "affordability" no longer apply...

Image: Gary Shilling

It’s also become clear that the NAR’s Housing Affordability Index in the earlier post-World War II years is not relevant to today’s conditions. Back then, unemployment rates were usually much lower than now (Chart 7, page 4) and the current threats of layoffs, wage and benefit cuts and being forced into part-time jobs were almost nonexistent. Who ventures into homeownership if he doesn’t know the size of his next paycheck or even if he’ll have one?

Also, with almost a quarter of all homeowners with mortgages under water with their mortgage principals exceeding the value of their houses, many can’t sell their existing abodes even if they wanted to buy other houses.

Mortgage refinancings are up, and they're helping, but most homeowners can't refinance

Image: Gary Shilling

About 60% of all borrowers with 30-year fixed-rate mortgages could lower their interest costs by one percentage point at current rates.  But only 38% could actually refinance due to tighter lending standards.

Nevertheless, lower mortgage rates have encouraged many whose mortgages aren’t under water to refinance them. Some are even paying down their mortgages to bring them above water so they can refinance at lowerinterest rates.    Mortgage applications to refinance have jumped lately, but remain well below the levels of early 2009.

Closing fees in refinancings, however, are an important offset to the reduction in mortgage rates. Closing costs in July were 37% higher on average nationwide than last year’s $2,739.

And don't forget that we now have MUCH TIGHTER lending requirements -- so much so that Fannie and Freddie and FHA now have to underwrite almost all mortgages

Image: Gary Shilling

At the same time, the house price collapse and subprime mortgage meltdown has led to a drastic tightening in lending requirements. In contrast to the no-document loose-lending practices of yesteryear, just listen to what it takes today to qualify for a mortgage. You’ll need a job and at least two recent paystubs, two years of W-2 forms, proof of other assets you own and your tax returns.

Then there is the property appraisal, which has morphed from ultra-liberal to excruciatingly conservative. So the appraisal may be well below your purchase price, especially in markets with falling prices, so you’ll have to come up with more cash for the downpayment or convince the seller to cut his price.

Downpayments have also leaped from the zero or even negative levels of the housing salad days, and    Federal    Housing Administration-insured loans as low as 3.5% require up-front mortgage insurance payments of 2.25%. Your alternative is essentially a loan insured by Fannie Mae or Freddie Mac since the    Government-Sponsored Enterprises account for almost all new mortgages today (see chart above).

Mortgages with downpayments under 20% require mortgage insurance and mortgage insurers insist on FICO credit scores of at least 680 out of 850 and charge $300 to $1,000 per year for every $100,000 borrowed. Estimates are that almost a third of Americans can't qualify for a mortgage because of low credit scores.

And now everyone knows that house prices CAN actually fall

Image: Gary Shilling

Most of all, the NAR’s Housing Affordability Index is largely irrelevant today because in contrast with the earlier post-World War II years, prospective buyers know that house prices can, and do, fall.

Who wants to buy an expensive asset with a big mortgage that may be worth much less shortly? And the financial leverage created by a mortgage magnifies the risk tremendously. Someone who buys a house with 5% down sees their equity wiped out if the price falls only 5%. So the fall in house prices and mortgage rates, which have driven up the NAR’s measure of affordability, have been offset by stronger forces.

So, too, will any future increases in the affordability index in all likelihood. The Fed may embark on further purchases of mortgage securities, which could reduce mortgage rates further, but the central bank will probably only act in response to additional economic weakness that will discourage homebuyers. The further declines in house prices we foresee will make them cheaper, but also convinces prospective owners that they are even worse investments.

The rebound in house prices is also suspect and may have peaked out (see chart above). Furthermore, both the previous decline and subsequent reversal probably overstate reality. Earlier, the many sales of foreclosed houses or by distressed homeowners tended to be lower-priced houses and, therefore, depressed average prices. The recent swoon in Los Angeles house prices compared with the early 1990s drop suggests this is true. Conversely, the recent rebound may be overstating reality since, as our good friend and great housing analyst Tom Lawler has noted, the homebuyer tax credit may have induced some to pay up to beat the deadline and to favor higher priced “traditional” house sales over “distressed” homes.

Tom also points out that the Case- Shiller price index for July, which showed increases in 13 of the 20 metro areas (not seasonally adjusted), was based on transactions from April to June and, therefore, included tax credit- related settlements in May and June. Also, seasonally-adjusted data reveals declines in 16 of 20 metro areas and a small 0.1% fall from June to July. Another Home Value Index compiled by Zillow reports that prices nationwide fell in July from June, the 49th consecutive monthly fall. That puts them down 24% from the May-June 2006 peak, similar to the 28% drop in the Case-Shiller index.

And then there's the still-massive number of foreclosures, which will keep pressure on prices

Image: Gary Shilling

The Administration’s HAMP initiative, introduced in April 2009, has been a huge disappointment...

But while mortgage modifications were attempted, lenders and servicers were basically forced by the government to suspend foreclosures. Now, as that program unwinds, foreclosures will again jump (Chart 12). Ironically, foreclosure rates have moderated recently because lenders tightened their standards in mid-2008 when housing and mortgages were in free fall. In 2009, two-thirds of all FHA- guaranteed new loans were to borrowers with credit scores over 660, up from 45% in 2008.

Nevertheless, lenders have been loosening in recent months. In January, Fannie initiated a program that allows first-time homebuyers to put down $1,000 or 1% of the purchase price, whichever is greater. In the first half of this year, credit card companies sent out 84.8 million offers to American subprime borrowers, up from 43.7 million a year earlier. In the second quarter of this year, 8% of new car oans were to borrowers with the lowest rank of credit scores, up from 6.2% in the fourth quarter of 2009.

The percent of mortgages past due is still climbing...

Image: Gary Shilling

Nevertheless, look for delinquencies (Chart 13) and foreclosures to spike in the slow economic growth, high unemployment quarters that probably lie ahead.

The number of bank-owned houses is still climbing (more future inventory)

Image: Gary Shilling

Already, Real Estate Owned by lenders due to foreclosures—perhaps the most hated term among bankers—is climbing (Chart 14). Estimatesare that a major share of the 7 million houses that have delinquent mortgages or are in some stage of foreclosure, as well as those yet to come, will be dumped on the market, adding to the already huge excessive inventory glut. Some 4.5 million loans are now in foreclosure or at least 90 days delinquent.

Mortgage delinquencies are linked to job losses... and the number of weekly unemployment claims is still too high

Image: Gary Shilling

Mortgages delinquent 30 days, many of which will probably end in foreclosure, have risen lately. They peaked in the first quarter of 2009 at 3.77%, then fell to 3.31% at the end of 2009, but have since risen to 3.51%, according to Tom Lawler.

He goes on to observe that 30-day delinquencies are linked to initial claims for unemployment insurance, which fell last year but subsequently leveled off and are now rising (Chart 15). Also, the delinquencies are rising as weak borrowers with modified loans again miss payments. Fitch Rating believes that 65% to 75% of mortgages modified under HAMP will redefault within 12 months.

"Distressed" sales are still high (prices slashed to move inventory)

Image: Gary Shilling

Indeed, bank-owned houses for sale jumped 12% in August from July when newly-initiated foreclosures jumped 25% to a six- year high.

Unlike most homeowners, banks tend to slash prices to unload REO quickly. As a result, average prices fell rapidly in 2008 when lenders sold foreclosed houses at low prices, as noted earlier. By January 2009, the share of distressed sales leaped to 45% of the national total (Chart 16). With the default moratorium on foreclosures due to HAMP, the distressed share has fallen on balance more recently, coinciding with the flattening in prices. But now with HAMP unwinding, foreclosures will probably leap, REO sales at low prices jump, and average prices resume their slide.

The homeownership rate (percent of households that are homeowners) continues to decline, probably headling back to its long-term average

Image: Gary Shilling

Back in the salad days of 10% annual price appreciation, a homeowner and/or investor who put down 5% enjoyed a wonderful 200%returnonhisinvestmentper year, neglecting taxes, interest and maintenance. But that hapless homeowner who bought at the peak lost all of his downpayment six times over as prices fell 30%.

No wonder that the homeowner rate, which spurted from its 64% norm to 69%, is now back to 66.9% in the second quarter and probably on its way back to 64% (Chart 18).

Meanwhile, household formation is lower than it was during the boom

Image: Gary Shilling

The converse of the ownership rate is the rental rate, which obviously fell from 36% to 31% and is now back up to 33.1%. We’ll explore the newfound zeal to rent vs. own later.

Meanwhile, we’ll consider another important component of the equation, household formation. Many believe that household formation and, therefore, demand for either owned or rented housing units is closely linked to population growth. A Beazer Homes official said recently that demographics would normally produce household growth of around 1.5 million a year.

But note that those trendless series are extremely volatile, ranging from a peak of almost 2.3 million at annual rates in the current cycle to less than 500,000 recently. Household formation is similarly volatile (Chart 19), not surprising since a household is defined as one or more people living in a separate dwelling unit and not in jail, college, an institution or an army barracks. So household formation is affected bythelustforhouseappreciation, income growth, employment prospects, family size, mortgage availability and all the other factors that determine the desirability of owning or renting.

Image: Gary Shilling

With the negative zeal for homeownership of late and weak incomes and high unemployment deterring    renting, household formation has been weak.

No wonder that the vacancy rate for single- and multi-familyhousingunitsremains high (Chart 21). Of course,

As they lose their jobs and houses, many Americans are "doubling up"--moving in with friends and relatives. This further reduces demand for housing.

Image: Gary Shilling

Of course, homeowners thrown out of their abodes by foreclosures can continue to be separate households
by renting houses and apartments, but many of those and other discouraged folks are shrinking
households—and adding to vacant housing units—by doubling up with family and friends.

The Census Bureau reports that in the last two years, multi-family households jumped 11.6% ( Chart 22) while total households rose a mere 0.6%. Those aged 25-34 living with parents—many of them “boomerang kids” who have returned home—increased by 8.4% to 5.5 million.  Not surprising, 43% of those were below the poverty line of $11,161 for an individual.

The number of houses for sale is still abnormally high... and house prices, like everything else, are a function of supply and demand

Image: Gary Shilling

As we’ve stated repeatedly in many, many past Insights, excess inventories are the mortal enemy ofhouse prices. And those excess inventories are huge.   

Notice (Chart 23) that, over time, new and existing inventories listed for sale have averaged about 2.5 million. So, we reason, that’s the normal working inventory level and anything over and above 2.5 million is excess.

At the peak of 5 million reached in October 2007, that excess was 2.5 million. It subsequently fell but with the recent jump, the total is 4.0 million, implying excess inventories of 1.5 million.

That’s a lot considering the average annual build of 1.5 million houses. So the inventories over and above normal working levels equals one year's average demand. But wait! There’s more!

As noted earlier, as foreclosures pick up with the ending of the mortgage modification-related moratorium on lender takeovers, “shadow” inventory will become visible as many of those bereaved of their abodes join friends and family.

Furthermore, if we take the Total Housing Inventory numbers published by the Census Bureau at face value—and Tom Lawler, a very careful housing analyst concludes that it takes more than the faith of a mustard seed to do so—there are a lot ofhousing units that are likely to be listed for sale as owners give up trying to wait out the housing bust.

Recently, my wife told me of a friend who finally listed her house for sale right after Labor Day and got nary a nibble in the following three weeks. Then she was further discouraged when two other similar houses in her neighborhood were listed.

When you count "shadow inventory", the imbalance looks even worse

Image: Gary Shilling

Between the first quarter of 2006, the peak of house sales, and the second quarter of this year, the number ofhousing units, net of teardowns, conversions to non-housing uses and other removals, rose 5.7 million.

Of that total, 1.1 million were added to the pool of vacant units listed for rent or sale, 2.8 million were occupied by new households and so on down the list. Of the 1.3 million increase in those Held Offthe Market, the 1.1 million rise in the “Other” category is the one of interest. This component has leaped from the earlier norm of about 2.6 million to 3.7 million in the second quarter (Chart 25).

This rapid rise, coinciding with the collapse in housing, suggests strongly that many of these houses are indeed shadow inventory, units withheld in hopes ofhigher prices but highly likely to emerge from the woodwork sooner or later.

If we assume that half the 1.1 million increase since the housing peak in the first quarter o f2006 are shadow inventory, the total excess jumps from 1.5 million to 2 million at present, and is likely to rise further.

THE BOTTOM LINE: House prices probably have another 20% to fall

Image: Gary Shilling

This huge and growing surplus inventory of houses will probably depress prices considerably from here, perhaps another 20% over the next several years. That would bring the total decline from the first quarter 2006 peak to 42%.

This may sound like a lot, but it would return single-family house prices, corrected for general inflation and also for the tendency of houses to increase in size over time, back to the flat trend that has held since 1890 ( Chart 26).

We are strong believers in reversions to the mean, especially when it has held for over a century and through so many huge changes in the economy in those years—two world wars and the 1930s Depression, the leap in government regulation and involvement in the economy, the economic transformation from an agricultural base to manufacturing and then to services, the post- World War II population shift from cities to suburbs, the western and southern transfer of population and economic strength, the movement from renting to homeownership and the accompanying spreading of mortgage financing, etc.

Furthermore, our forecast of another 20% fall in house prices may be conservative. Prices may well end up back on their long- term trendline (Chart 26), but fall below in the meanwhile. Just as they way overshot the trend on the way up, they may do so on the way down, as is often the case in cycles. Furthermore, another big house price decline will spike delinquencies and foreclosures leading to more REO sales by lenders,whichwillfurtherdepress prices. Our analysis indicates that a further 20% drop in prices will push the number of homeowners who are under water from 23% to 40%, resulting in more strategic defaults, more REO, etc.

If house prices DO fall another 20%, a lot more homeowner equity will be wiped out

Image: Gary Shilling

At that point, the remaining home equity of those with mortgages would be wiped out on average (Chart 27. That, in turn, would impair already-depressed consumer confidence and their willingness and ability to spend, to say nothing of residential construction.

In California, epicenter ofthe housing boom-bust, construction jobs dropped 43% from June 2006 to June of this year, compared to a 28% decline nationwide, and the unemployment rate in the Golden State jumped to 12.3% in June, far above the 9.5% rate nationally.

No wonder REALTORS are so depressed

Image: Gary Shilling

It’s not surprising that the confidence of those involved in residential real estate is low and declining. The NAR Realtor Confidence Index is again plunging (Chart 30). A neutral reading for this index is 50, and it's now 24.1. In June, 42% of realtors expected prices in their areas to fall in the next 12 months compared with 33% in May.

Fannie and Freddie are ending up owning more and more foreclosed houses (at taxpayer expense). This is prolonging the problem...

Image: Gary Shilling

Fannie and Freddie are also allowing homeowners who face foreclosure and qualify for mortgage modification to stay in their houses for up to a year by renting them. The goals are to help those folks, keep the homes occupied to avoid deterioration, realize some positive cash flow and keep more houses off the market. The rents, at market rates, are often lower than their monthly mortgage payments. Still, these programs simply add to shadow house inventory, which will be revealed as those one-year leases mature and foreclosures are implemented.

Due to foreclosures, Fannie and Freddie owned 191,000 houses at the end of June, double the year- earlier total (Chart 33). And the inventory is growing as they take back houses faster than they sell them. Newly-initiatedforeclosures at Fannie and Freddie rose to 150,000inJuly,up60%fromApril, as borrowers failed to qualify for loan modifications. And they are encouraging the lenders of the mortgages they guarantee to seize foreclosed houses more rapidly to avoid them deteriorating or being trashed. Fannie took a $13 billion charge in the second quarter for cleaning pools, mowing lawns ad other carrying costs on the properties it owns.

Given all this, it's not surprising that few folks are planning to buy new houses...

Image: Gary Shilling

As noted earlier, traffic through new homes by prospective buyers is again falling, according to home builders (Chart 37).

And that new mortgage applications remain back at 1990s levels

Image: Gary Shilling

New mortgage applications for home purchases continue to drop (Chart 38).

And that the number of people planning to buy a house in the next six months continues to drop

Image: Gary Shilling

And those planning to buy a home within six months persist in declining (Chart 39).

Depressed yet? We are, too. But at least, as a Business Insider reader, you'll get a discount on Gary Shilling's research...

Image: A Gary Shilling & Co.

The previous essay was excerpted from the latest monthly research of Gary Shilling of A. Gary Shilling & Co. Gary is offering a special discount on his research service for Business Insider readers. To learn more, please check out Gary's web site or call 1-888-346-7444. Please mention Business Insider.

Read more: http://www.businessinsider.com/gary-shilling-and-now-house-prices-will-now-drop-another-20-2010-12?slop=1#slideshow-start#ixzz19abx7IyN

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President Mugabe Making $2 Billion Smuggling "Blood Diamonds"

Smuggled-Diamond Revenue Flows to Mugabe’s Zimbabwe Before Vote

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By Brian Latham and Fred Katerere

Dec. 29 (Bloomberg) -- Enos Chikwere spills nine uncut diamonds from a bag at Restaurante Piscina in Mozambique near the Zimbabwe border and says they’re worth $75,000.

“I can supply all the diamonds you need,” said Chikwere, explaining that he sneaked them into Mozambique after buying them from Zimbabwean soldiers.

Chikwere and hundreds of other border smugglers are part of a chain whose money flows back into Zimbabwe, whose president for three decades, Robert Mugabe, has ruled over four violent and disputed elections since 2000. Mugabe’s policies of land seizure helped cause the economy, once the second-biggest in southern Africa, to shrink by 50 percent in eight years.

The gems from Zimbabwe’s biggest diamond field in the Marange region are helping enrich the 86-year-old president’s party ahead of next year’s vote, according to Human Rights Watch, Partnership Africa Canada and the Zimbabwean opposition party, Movement for Democratic Change, which governs in a forced coalition with Mugabe’s party.

Annual income from the gems may reach $2 billion, assuming the country is able to export them freely, the state-owned Herald newspaper cited Mines Minister Obert Mpofu as saying in October. Mugabe is trying to amass funds for the election campaign, said Tom Porteous, the U.K. director of New York-based Human Rights Watch, which has lobbied against abuses for the past 30 years.

“Revenue from the mines is serving to prop up Mugabe and his cronies,” Porteous said in a Dec. 8 response to e-mailed questions. “There are real concerns that diamond revenue will be used to fund political violence and intimidation of Mugabe’s opponents.”

Soldiers and Diggers

Human Rights Watch cited interviews with unidentified soldiers, diggers, community leaders and members of government and the parliamentary portfolio committee on mines and energy to support its allegations.

Partnership Africa Canada, an Ottawa-based nonprofit organization, said in a June report that Marange is controlled by the military and proceeds from the gems aren’t benefiting the country. The group cited testimony in Zimbabwe’s parliament, company statements, and interviews with unidentified diplomats and illegal miners for its conclusions.

Illegal smuggling benefits Mugabe because it is mostly carried out via the military, according to the two nonprofits and interviews with six smugglers and two dealers in and around Vila de Manica, where Chikwere, clad in Diesel jeans and wearing two gold chains, was displaying his wares.

Finance Ministry

The army reports to the president. The Finance Ministry, by contrast, is controlled by Morgan Tsvangirai’s Movement for Democratic Change, or MDC, and receives revenue from legal diamond mining in the form of taxes.

Mugabe’s party, the Zimbabwe African National Union- Patriotic Front, or Zanu-PF, denies the smuggling allegations.

“These are just inventions of the western imperialists who are trying to discredit Zanu-PF,” party spokesman Rugare Gumbo said in a Dec. 6 interview from Harare, the country’s capital. “There is no corruption at Marange and Zanu-PF is not using the proceeds.”

Diamonds from Marange can’t be exported legally from Zimbabwe because the field hasn’t yet met an international certification standard showing that proceeds from sales aren’t used to finance conflict.

Mining at Marange has been subject to allegations of military abuses of unauthorized miners and disputes over ownership of the deposit. Human Rights Watch said in June that 200 miners were killed in 2008 at the site by the military, and also reported that the army controls most of the deposits and is forcing local community members to mine the gems on its behalf.

Kimberley Process

Soldiers are smuggling gems across the border, according to Human Rights Watch, which cited information it has obtained and interviews with unidentified people.

Mozambique isn’t a member of the so-called Kimberley Process, an organization that includes governments and diamond industry companies and is designed to reduce the number of so- called conflict diamonds in the world. The Jerusalem-based group said it couldn’t decide on whether to allow unfettered exports from Marange at a meeting that ended on Nov. 4.

The Kimberley Process says it has reduced the proportion of conflict diamonds in the world trade to 1 percent from 15 percent. Signatories, which include all major diamond-producing and buying countries, have pledged that they won’t deal in uncertified gems.

While the Kimberley Process has allowed two “limited” auctions of gems from Marange this year, the state-owned Chronicle newspaper said an August sale earned the government $30 million. By contrast, Central Bank GovernorGideon Gono said in 2007 that smuggling from the Marange site was costing the country as much as $40 million a week.

Paying Civil Servants

“We need the money to pay civil servants,” said Finance Minister Tendai Biti, a member of the MDC, in a Dec. 3 interview from Harare. “We must rein in the political elite who are prospering from the stones.”

In the past decade, Mugabe has seized land from white farmers and given it to blacks, including government officials, and made proposals that would force foreign companies to sell 51 percent of their assets to black Zimbabweans.

The result has been a 50 percent decline in the production of tobacco, the country’s biggest export in 2000, while corn production has fallen by more than half, causing national famines. Gross domestic product shrank by 50 percent between 2000 and 2008, and the country scrapped its currency, the Zimbabwe dollar, in 2009 as inflation rose.

Attempts to attract aid to help the economy haven’t been successful: The country received $3 million from foreign donors in the first quarter of 2010, 0.4 percent of its annual target, according to Biti.

Contested Election

The MDC said in a Dec. 17 statement that it holds the leadership of the Zanu-PF party responsible “for years of plunder and human rights abuses at the mine fields.”

Mugabe’s party narrowly won an election in 2000 against the MDC amid complaints of attacks and murders of opposition supporters. Tsvangirai came back in 2008 and beat Mugabe in a first-round presidential vote, though he failed to get the 51 percent needed to avoid a runoff. He then boycotted the runoff, citing violence. Mugabe’s party was forced by neighboring states into a coalition with the MDC in February 2009.

Tsvangirai has twice been unsuccessfully charged with treason and underwent a brain scan in 2007 for a suspected skull fracture after he was beaten by police.

Mugabe said Dec. 17 at an annual conference of his party in Mutare that the coalition government needs to come to an end. The MDC is “dragging their feet on elections,” he said, adding that general and presidential polls should be held next year.

Constitutional Wrangle

Mugabe’s party has frustrated attempts to implement a new constitution, according to the MDC, which is demanding such steps as a condition for elections.

Diamond fields in eastern Zimbabwe were seized in December 2006 from Maidstone, England-based African Consolidated Resources Plc by the Zimbabwean government.

Since then, thousands of illegal miners have periodically been evicted from the deposits, according to Human Rights Watch. Mbada Investments (Pvt) Ltd., in which Johannesburg-based scrap metal company New Reclamation Group Ltd. has a stake, runs a mining concession at part of the site with the state-owned Zimbabwe Mineral Development Corp.

Members of Zimbabwe’s political elite ranging from Mugabe’s wife, Grace, to military leaders allegedly profited from illegal trading of diamonds, according to a November 2008 U.S. diplomatic cable published by WikiLeaks. In the cable, former American ambassador to Zimbabwe James D. McGee cited an industry official and a senior member of Mugabe’s party as his sources.

‘Where is the Evidence?’

“The allegations made against the First Lady and others regarding illegal diamonds from Marange are scandalous and untrue,” George Charamba, Mugabe’s spokesman, said in a Dec. 22 interview from Harare. “Where is the evidence? There is no wrongdoing in Marange.”

The soldiers are very open, said a Nigerian gem dealer in Chimoio, capital of Mozambique’s Manica province, who repeatedly said his name was Colonel Rambo. They give their cut to their superior officers, who in turn surrender a percentage to politicians in Zimbabwe, he said.

He displayed a suitcase full of $100 bills that he said amounted to more than $1 million. Ministers are involved in this business on the other side of the border, he said.

David Kassel, New Reclamation’s chairman, declined to comment when called on Dec. 15. London-based Old Mutual Plc, which owns “less than 6 percent” of New Reclamation, said in an e-mailed response to questions that its actions are guided by the Kimberley Process and Zimbabwean laws. No allegations of illegal action have been made against Old Mutual or New Reclamation. New Reclamation didn’t respond to a Dec. 17 e-mail.

No Arrests

“We have not arrested anyone for dealing in diamonds because no one has reported to us violations of any law,” Belmar Mutadiwa, a police spokesman for Mozambique’s Manica province, said in a Dec. 6 interview. “Most of the dealers operating in the province have been licensed by the government to buy precious and semi-precious stones.”

A police station in Vila de Manica is situated on a street where dealers from Guinea, Lebanon, Sierra Leone and Nigeria -- who all disclosed their nationalities in interviews -- trade on the porches of their houses. Security guards sit outside.

Mercedes, Humvee and Range Rover vehicles drive down the town’s streets, lined by freshly painted houses sprouting satellite television dishes. By contrast, the 750-mile drive to the region from Mozambique’s capital, Maputo, runs through small towns where ramshackle buildings are side-by-side with grass shacks known as baraccas.

Purchase Point

Vila de Manica has “become one of the premier purchase and departure points for Marange’s illegal diamonds,” Partnership Africa Canada said in a Junereport on its website.

“Diamonds are being sold in this district, after they’ve been smuggled from Zimbabwe”, said Jose Tefula, district administrator for Manica District, in a Dec. 20 phone interview. “Locally we don’t have any diamonds, so the stones can only come from Zimbabwe.”

Three messages left at the Manica branch of the Department of Mineral Resources weren’t returned.

A group of about 40 diamond dealers surrounded the vehicle in which two Bloomberg reporters were travelling in Vila de Manica on Nov. 26. They banged the side of the car with their fists, blocked the escape route with motor vehicles, seized and damaged a camera and shouted “you’re dying today.”

Two policemen arrived and detained the reporters for almost an hour, saying they should have sought permission to enter the area. No action was taken against the dealers.

No Details

New Reclamation rebuffed a petition made by Johannesburg’s Southern African Litigation Centre in October through the Access to Information Act for details of its involvement in Zimbabwe’s diamond industry, Nicole Fritz, the group’s director, said on Dec. 15 from her mobile phone. New Reclamation’s Kassel declined to comment and put the phone down when asked about Marange.

Marange’s deposits may contain 1,000 carats of gems per hundred tons of ore, the official said in the cable posted on WikiLeaks, citing a geologist’s report prepared for De Beers, the world’s biggest diamond company. That compares with a grade of 120 carats at Rio Tinto Plc’s Murowa mine in Zimbabwe, the official said.

Tom Tweedy, a spokesman for Johannesburg-based De Beers, declined to comment on Dec. 9.

More Than Botswana

Zimbabwe may mine 40 million carats of diamonds annually within three years, the state-controlled Herald reported Oct. 18, citing Mpofu. Botswana, the world’s biggest diamond producer by value, expects gem production of 24 million carats this year.

Murowa produced 97,000 carats of diamonds in 2009 while production at the country’s other diamond mine, River Ranch, isn’t disclosed. Total national official production in 2007 was 695,000 carats, worth $31 million, according to the Herald.

“We believe the new intransigence of Zanu-PF is down to its finding of an infinite source of wealth,” Fritz said. “There is this race to elections.”

In Vila de Manica, smuggler Chikwere boasted that there was no limit to the amount of stones he could bring into Mozambique.

“Don’t worry about me and the border,” he said. “I have my systems.”

To contact the reporters on this story: Brian Latham in Durban, South Africa atblatham@bloomberg.net; Fred Katerere in Maputo, Mozambique via Johannesburg at asguazzin@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin in Johannesburg at asguazzin@bloomberg.net

Last Updated: December 28, 2010 17:01 EST

Jack's Classic Beautiful Woman For Wednesday

posted by: ddgirls in ru_stockings

Jack's Beautiful Woman For New Year's Eve

buev

December 23rd, 15:13

Candice Boucher-Jack's Classic Beauty For Tuesday

Obama calls Eagles owner to congratulate him for signing Vick - Shutdown Corner - NFL - Yahoo! Sports

Obama calls Eagles owner to congratulate him for signing Vick - Shutdown Corner - NFL - Yahoo! Sports

Number Of Uninsured Americans Soars To Over 50 Million

Number Of Uninsured Americans Soars To Over 50 Million

Less than a year ago, Francis Campos-Dunn was still working at a county hospital in the San Francisco Bay Area, helping patients navigate the often-maddening bureaucracy required to draw on their health insurance. These days, she has a new set of problems to navigate: how to manage her own care without any insurance of her own, having slipped into an unfortunate but fast-growing slice of the population--Americans who have lost their jobs and now lack health coverage.

Back when she was still working, Campos-Dunn, 42, earned $4,000 a month, enough to make her co-payments for regular medical care. These days, she depends on $300 a month contributions from her 16-year-old son--money he earns at a part-time job--just to pay to the rent. When a recent seizure left her with two broken teeth, she skipped the required treatment and opted to have the teeth pulled instead, because she lacked the funds--a choice that would have previously seemed unthinkable.

As the Great Recession has sown unemployment and downgraded work even for those people who have held on to their jobs, the number of Americans lacking healthcare has swelled beyond 50 million, according to a sobering new report from the Kaiser Foundation.

Among the report's most troubling findings: The number of Americans without any health care coverage grew by more than four million in 2009. That left almost one-fifth of non-elderly people uninsured. Among those between 19 and 29 years old, nearly one-third lacked coverage.

The study underscores the degree to which the recession has accelerated the loss of basic elements once viewed as inextricable pieces of a middle class life. The number of Americans lacking medical coverage now exceeds the population of Spain.

Nearly all Americans over 65 are insured by Medicare, the government-run health care plan, but those beneath that age are increasingly vulnerable to losing health care once provided by their employers or finding themselves unable to afford private coverage, according to the report, "The Uninsured: A Primer."

As those lacking health insurance grow in number, so do those missing out on necessary medical attention. About one-in-four uninsured adults have forgone care in the past year because of costs, compared to only 4 percent of those who have private coverage, according to the report.

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Those lacking health coverage are vulnerable to what has become a commonplace financial calamity: confronting a medical emergency, and having to pay for care entirely out of pocket. This year, 27% of uninsured adults used up most or all of their savings paying medical bills, according to the study. Half of these uninsured households had total assets of $600 or less.

Medicaid covers Americans with the lowest incomes, but that fact merely mitigates conditions for people in abysmal circumstances: Medicaid beneficiaries are typically in much worse health than those with private coverage. They are likely to have incomes that place them well below the poverty line, and to suffer health conditions that impede their ability to work, exacerbating their difficulties.

Under the health reforms championed by President Obama, Medicaid is set to expand in 2014 to cover almost all people under 65 with incomes up to 138% of the federal poverty line. That would provide health care to many more Americans who now lack coverage. But until then, many Americans will continue to shoulder the burden of unaffordable health care costs.

The soaring number of people falling through the cracks and going without health insurance is in large part the result of the recession, which has eliminated millions of jobs, along with employer-sponsored coverage. Roughly half of all working age Americans with insurance have it through their employer.

Even among those who have avoided unemployment, millions have been forced to take temporary or part-time positions for lack of available full-time work, often surrendering their benefits in the process.

More than half of those who are officially unemployed have no health coverage whatsoever,according to a Rutgers University study, "The Shattered American Dream: Unemployed Workers Lose Ground, Hope, and Faith in their Future." Those numbers increase to nearly 60% for those who have been unemployed for over six months. Six in ten Americans have been unemployed for over a year.

Yet even if the economy soon adds more jobs and lowers the ranks of the unemployed, the scarcity of health coverage is likely to endure, argues one of the study's authors, Carl Van Horn, Professor of Public Policy at Rutgers University and Director of the John J. Heldrich Center for Workforce Development. Long before the recession, he noted, having a job conveyed no guarantee of coverage.

"Just recovery of jobs isn't sufficent to address the issue," he said. "A lot of the jobs that people are getting are part-time jobs and/or don't have healthcare benefits attached to them."

And even those who are eligible for healthcare in the wake of job loss cannot always take advantage of what is available to them.

"It's pretty obvious that government policies are confusing," Van Horn said. "A lot of folks are losing their jobs for the first time and they don't know what they're even entitled to."

Paying for healthcare can be one of the first things to go for families dealing with constrained finances. Over 50% of those surveyed said that healthcare was one of the expenses they could not afford to pay.

"We have an employer-based healthcare system," Van Horn said. "And if your lose your job, unless you're old or very poor, you have no health care insurance."

In San Mateo, California, just south of San Francisco, Francis Campos-Dunn understands this fact all too well. For years, she has contended with a variety of often-expensive health problems, making her insurance situation particularly crucial.

Her administrative job at the San Mateo County Hospital provided for her needs and also delivered insurance for her son and a granddaughter. But late last year, she was laid off, and so began a painful and bewildering lesson in the particularities of the American health care system.

Kaiser, the giant health maintenance organization, offered her the option to continue her health insurance for $1,500 dollars a month. But that outstripped her total income-- a disability payment of $1,300 a month.

So Campos-Dunn turned to Medical, California's state-run health insurance--the state's version of Medicaid. But they told her that her income exceeded the allowable limit by $32 a month and denied her claim, she says. Undeterred, she appealed, was granted a hearing and was subsequently approved for the state insurance.

But three weeks later, another letter arrived informing her that once again, she made too much money to qualify for the state's health insurance. Since her unemployment, she has struggled with this ceaseless back and forth with the bureaucracy, going without care for weeks in between.

"I never thought I'd be in this position," she said. "I used to help families get on insurance. I used to hear all these problems. I used to think anything was possible to try to figure out a way around it so they could get health insurance. Now I have no health insurance."

With her medical condition continuing to require care, her battle to keep up has worn her down past the point where she can even muster the effort to continue fighting.

"It got up to a point where I didn't even try to deal with them anymore," she said. "If I ended up in the hospital I'd just pay the bill."

She now owes Kaiser over $55,000, she says. She owes the San Mateo County Hospital--her old employer-- over $22,000.

"I just don't think it's right," she said. "I've been working since I was 15 years old and now I can't access what I need because I make 32 dollars too much."