What is wrong with the US economy? Part 2

[fuzzyfelt]

Perhaps, but the governments already now have stakes, and also perhaps there has been a change from the developed market credit crisis to emerging markets currency meltdown, all with the downturn in the background.

 

[turbo]

What galls me is that the Fed keeps dropping rates to stimulate borrowing and lending, while those of us who have saved all our lives are taking it in the neck. Money-market accounts and savings accounts pay nothing these days.

 

[Astronuc]

Low government interest rates are part of the problem also. The lenders benefitted from low interest rates by larger point spreads - they borrowed low and load at high interest rates. For the most part, consumers did not benefit.


They the other thing - under Bush, the economy produced sub-prime jobs. That and too many sub-prime loans lead to an over-leveraged economy - in addition to fiscal irresponsibility.

 

[Astronuc]

Hammer time!

World markets slump [again]; Nikkei at 26-year low
http://biz.yahoo.com/ap/081027/world_markets.html

LONDON (AP) -- World stock markets slumped again Monday with the Nikkei index in Japan closing at its lowest in 26 years as the financial crisis drove up the yen, piling the pressure on the country's exporters.

Tokyo's Nikkei 225 index closed down 6.4 percent to 7,162.90 -- the lowest since October 1982. Hong Kong's Hang Seng Index tumbled 12.7 percent to 11,015.84, its lowest close in more than four years and biggest daily decline since 1991.

European markets followed Asia lower, with benchmarks in Britain, Germany and France trading down more than 4 percent in early trading. The FTSE 100 index was 190.31 points, or 4.9 percent, lower at 3,693.05, while Germany's DAX was down 182.81 points, or 4.3 percent, at 4,112.86. France's CAC-40 was the worst performing European index, down 184.65 points, or 5.8 percent, at 3,009.14.

"Worries about the impact of the surging yen on Japanese export earnings have hit the Nikkei hard," said Julian Jessop, chief international economist at Capital Economics.

"This in turn has led to sharp falls in European markets even when, as on Friday, the U.S. had closed higher the day before," he added.

Dow futures were down 268 points, or 3.2 percent, at 7,994. Standard & Poor's 500 futures were down about 4 percent.

Major Stock Indices (in local currency)
Asian Markets

AORD   All Ordinaries       3,768.30 1:11AM ET     -63.30 (-1.65%) 
SSEC   Shanghai Composite   1,723.35 3:00AM ET    -116.27 (-6.32%)  
HSI    Hang Seng           11,015.84 5:59AM ET  -1,602.54 (-12.70%)  
BSESN  BSE 30               8,509.56 5:59AM ET    -191.51 (-2.20%)  
JKSE   Jakarta Composite    1,166.41 6:33AM ET     -78.46 (-6.30%) 
KLSE   KLSE Composite N/A                            0.00 (0.00%)  
N225   Nikkei 225           7,162.90 3:00AM ET    -486.18 (-6.36%)  
NZ50   NZSE 50              2,778.55 Oct 24        -28.79 (-1.03%) 
STI    Straits Times        1,600.28 Oct 24          0.00 (0.00%)  
KS11   Seoul Composite        946.45 5:03AM ET      +7.70 (+0.82%)  
TWII   Taiwan Weighted      4,366.87 1:46AM ET    -212.75 (-4.65%)

European Markets

ATX    ATX                  1,700.32 6:59AM ET    -156.51 (-8.43%)  
BFX    BEL-20               1,824.52 7:16AM ET     -93.56 (-4.88%)
FCHI   CAC 40               3,005.89 7:16AM ET    -187.90 (-5.88%) 
GDAXI  DAX                  4,105.93 7:02AM ET    -189.74 (-4.42%)  
AEX    AEX General            234.35 7:16AM ET     -11.57 (-4.70%)  
OSEAX  OSE All Share          250.75 7:01AM ET     -17.63 (-6.57%)  
MIBTEL MIBTel              14,653.00 7:16AM ET    -737.00 (-4.79%)  

SMSI   Madrid General         843.54 7:15AM ET     -50.91 (-5.69%) 
OMXSPI Stockholm General      176.17 7:16AM ET     -10.52 (-5.64%)  
SSMI   Swiss Market         5,423.12 7:16AM ET    -251.97 (-4.44%)  
FTSE   FTSE 100             3,699.04 7:01AM ET    -184.32 (-4.75%)

This will certainly be one of those periods highlighted in the history books.

 

[jal]

"Worries about the impact of the surging yen on Japanese export earnings have hit the Nikkei hard," said Julian Jessop, chief international economist at Capital Economics.

Has anyone figured out that now the japanese can go and buy out any asset at basement prices?

 

[mgb_phys]

Has anyone figured out that now the japanese can go and buy out any asset at basement prices?

Not exactly - the US$ is going up.
Any asset they wanted they bought last time (in the 80s) most profitable US companies are either in defence or can claim to have enough links to national security that you can block foreign takeovers (eg ports). somehow I can't see Toyota buying GM to gain their experience of building cars.
The euro is looking very cheap though - might be time to buy a european car company or mobile phone maker.

 

[mheslep]

I believe the markets now undervalue the underlying earnings beyond any reason: The US stock market capitalization is now $7-9 trillion in an economy that produces $14 trillion yearly. Even in the worst recession scenario on the table GDP is NOT going to change much. The stock markets may decline further, but at this point it is panic selling not earnings based.

 

[Astronuc]

This morning I heard that there was a lot of downward pressure because of margin calls, i.e. all those folks who had borrowed to buy stock with the expectation of appreciation had to sell stock to pay back the borrowed money/stock.

 

[edward]

This morning I heard that there was a lot of downward pressure because of margin calls, i.e. all those folks who had borrowed to buy stock with the expectation of appreciation had to sell stock to pay back the borrowed money/stock.

I have been thinking about that. Speculators can now borrow money provided by the government to play the market, Something is wrong with this picture.

 

[fuzzyfelt]

Really weird stuff, like Volkswagon being the 2nd biggest company in the world for a little while today.

 

[mgb_phys]

Really weird stuff, like Volkswagon being the 2nd biggest company in the world for a little while today.

And Porsche are still trying to buy them!

So you are rolling in cash because yuppies have been buying your sports cars and even the worlds ugliest SUV (although cthulu knows why) - you suspect that things aren't going to last for ever so you look at buying one of the biggest producers of small cars.
Somebody in the Porsche family obviously inherited some brains.

 

[fuzzyfelt]

I believe the markets now undervalue the underlying earnings beyond any reason: The US stock market capitalization is now $7-9 trillion in an economy that produces $14 trillion yearly. Even in the worst recession scenario on the table GDP is NOT going to change much. The stock markets may decline further, but at this point it is panic selling not earnings based.

I think this could be confusing micro (like the evaluation of companies) with macro (like countries) economics. National account numbers are historical figures (which, roughly, in the event of a recession the GDP growth rate declines over 6 months or more, and in a depression GDP growth itself declines for that period). Companies, otoh, are valued on their future earnings, for say a year in advance, involving variables, some knowable, that include EBITDA, like price to earning ratio, dividend yield, free cash flow multiple... With the speed of this crisis Analysts, in most cases, haven't yet revised their projections.

 

[B. Elliott]

And Porsche are still trying to buy them!

So you are rolling in cash because yuppies have been buying your sports cars and even the worlds ugliest SUV (although cthulu knows why) - you suspect that things aren't going to last for ever so you look at buying one of the biggest producers of small cars.
Somebody in the Porsche family obviously inherited some brains.

Porsche has slowly been buying more and more of Volkswagen over the years. It's primarily been due to prevent foreign companies from taking over. Preservation of tradition and heritage is paramount to Porsche.

 

[jal]

What is wrong with the US economy?
http://www.bloomberg.com/apps/news?pid=20601109&sid=aVann0.cv9Tw&refer=home
Broken Securities Industry Still Has $20 Billion to Pay Bonuses

The following table compares compensation and estimated bonuses for the first nine months of 2008 with the first nine months of last year. Bonus estimates are 60 percent of total compensation. Bonus awards are typically determined at the end of the year, with payments made in December or January.

( The table does not cut and paste properly go read it)
---------
Their wages came out of the money that came from the investors.
Therefore, don't ask why there is a "market correction".
You could ask, "Without the bail out, where would the money come from for those bonus?"

 

[fuzzyfelt]

Wow, VOW was the biggest company in the world for a little while today.

(Agreed the Porsche SUV is really ugly )

 

[mheslep]

So a friend working at Freddie Mac told me recently that Secretary Paulson had dropped by and gave a large forum talk to the employees of the now government owned firm. Apparently he told them keep their heads up, and "just keep doing what you've been doing". Ok, I assumed that meant keep buying mortgages, but certainly the days of low down payments and risky loans are over, right? Then I see this in the latest The Economist:

...Surprisingly, mortgage-lending conditions may be improving. Under pressure from the federal government, Fannie Mae and Freddie Mac, the now-nationalised mortgage agencies, and the Federal Housing Administration, the programme for low-income buyers, are stepping up their activity. A buyer can now obtain an FHA loan with as little as 3.5% down on a house costing up to $625,000—which would include most of the homes in the country. Ms Zelman reckons the FHA accounted for 22% of mortgage originations in the third quarter, up from 5% in all of 2007.

Incredible. Inmates are running the asylum. Anybody giving out less than 20% down loans ought to be in a padded room.

 

[Greg Bernhardt]

Incredible. Inmates are running the asylum. Anybody giving out less than 20% down loans ought to be in a padded room.

yup, if you can't put down 20% you simply can't afford it. Stick to renting. Why people think they can borrow $600k when they only have $20k in the bank is beyond me.

 

[Astronuc]

White House to banks: Start lending now
http://news.yahoo.com/s/ap/20081028/ap_on_bi_ge/financial_meltdown

WASHINGTON – An impatient White House served notice Tuesday on banks and other financial companies receiving billions of dollars in federal help to quit hoarding the money and start making more loans.

"What we're trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money," White House press secretary Dana Perino said.

Though there are limits on how much Washington can pressure banks, she noted that banks are regulated by the federal government.

"They will be watching very closely, and they're working with the banks," she said.

Anthony Ryan, Treasury's acting undersecretary for domestic finance, made the same point in a speech in New York before financial executives.

"As these banks and institutions are reinforced and supported with taxpayer funds, they must meet their responsibility to lend, and support the American people and the U.S. economy," Ryan told the annual meeting of the Securities Industry and Financial Markets Association. "It is in a strengthened institution's best financial interest to increase lending once it has received government funding."

Washington is getting impatient.

It will certainly be interesting to see who takes Paulson's place. I understand, he doesn't plan to stay in the next administration.

 

[mgb_phys]

WASHINGTON – An impatient White House served notice Tuesday on banks and other financial companies receiving billions of dollars in federal help to quit hoarding the money and start making more loans.

In further news they gave $5 to a 5 year old and told them not to spend it all on sweets.

 

[Astronuc]

In further news they gave $5 to a 5 year old and told them not to spend it all on sweets.

The US government can't afford such lavish spending. Five bucks indeed! What is this nation coming to?!

 

[Astronuc]

Folks with money snatched up stocks on the US markets sending the Dow 30 up nearly 900 pts. A good day.

Meanwhile

Medical Debt Sending Many Over Financial Brink
http://news.yahoo.com/s/hsn/20081028/hl_hsn/medicaldebtsendingmanyoverfinancialbrink

TUESDAY, Oct. 28 (HealthDay News) --Since 1999, Keith and Deborah Krinsky of Magalia, Calif., have seen their health insurance deductible soar from $1,000 to $10,000.

And their health-care costs have put them in a financial hole.

A combination of Keith's chronic asthma and potential heart problems, Deborah's connective tissue disorder and fallen arches, and their kids' various scrapes and stumbles led them to amass a pile of credit card debt and forced them to refinance the mortgage on their house -- which they now are having trouble paying.

Keith, once a plant manager for a trucking company in Chico, took a $30,000 pay cut to get a job with better health benefits. Deborah, who doesn't work because of her disability, said they are still fighting desperately to stave off foreclosure.

"Right now, we are in the process of losing our home. We will probably go to my mother-in-law," Deborah said Monday.
. . . .

U.S. consumer confidence plunges to record low
Job, economic worries worsen as financial crisis takes toll


On the bright side - Stranger buys foreclosed home for woman on hard times

 

[mheslep]

I think this could be confusing micro (like the evaluation of companies) with macro (like countries) economics. National account numbers are historical figures (which, roughly, in the event of a recession the GDP growth rate declines over 6 months or more, and in a depression GDP growth itself declines for that period). Companies, otoh, are valued on their future earnings, for say a year in advance, involving variables, some knowable, that include EBITDA, like price to earning ratio, dividend yield, free cash flow multiple... With the speed of this crisis Analysts, in most cases, haven't yet revised their projections.

There are also the large number of private or small firms that help make up annual GDP numbers but are not reflected in the publicly traded stock markets. Yet the figures are still connected, with GDP reflecting earnings for the nation, and the stock market _should_ be reflecting a valuation of the publicly traded part those company's earnings, or more precisely the expected present value of future earnings. That is, the market _should_ reflect not just a company's earnings for one year in advance, but _all_ of its expected future earnings calculated as net present value.

 

[fuzzyfelt]

There are also the large number of private or small firms that help make up annual GDP numbers but are not reflected in the publicly traded stock markets. Yet the figures are still connected, with GDP reflecting earnings for the nation, and the stock market _should_ be reflecting a valuation of the publicly traded part those company's earnings, or more precisely the expected present value of future earnings. That is, the market _should_ reflect not just a company's earnings for one year in advance, but _all_ of its expected future earnings calculated as net present value.

I see, Ok.

Arguably, the markets are below long term fair trade, basis $70 earnings for S&P 500 companies, that that number should be around 925 theoretically, with compelling value, based on historical data, around the 580-650 range. But then, when is it likely to trade there, 5 years time, sooner? I also wonder how connected, given other influences like global money flows, currency and emerging markets risks, crude, or internally, capital destruction, savings, etc..

 

[mheslep]

I see, Ok.

Arguably, the markets are below long term fair trade, basis $70 earnings for S&P 500 companies, that that number should be around 925 theoretically, with compelling value, based on historical data, around the 580-650 range. But then, when is it likely to trade there, 5 years time, sooner? ...

Good point, illustrating why investment in the market requires a ~5 year window at least.

 

[Astronuc]

World markets cheer Fed rate cut- AP

World stock markets rose Thursday after the U.S. Federal Reserve slashed interest rates to help revive the world's largest economy and opened new credit lines with other central banks.

Shell reports 22 percent rise in 3Q profit- AP (before the price of oil fell)
VW's 3Q net profit up 28 percent to 1.2B euros- AP
Cigna reports 53 percent drop in 3Q profit- AP (financials are still problematic)


Stocks signal sharply higher open after rate cut
http://biz.yahoo.com/ap/081030/wall_street.html

Global stocks, euro rally on emerging market gains
http://news.yahoo.com/s/nm/20081030/ts_nm/us_markets_global

. . . . The Fed also opened up dollar liquidity aid beyond traditional markets, with four new $30 billion currency swap lines with Brazil, Mexico, South Korea and Singapore.

"The Fed's statement has paved the way for further rate cuts ...Its policy outlook is softer, and is pushing the dollar lower," said David Tinsley, economist at nabCapital.

"The Fed is doing its bit to shore up emerging economies, so that's improving risk appetite toward those currencies."

The MSCI world equity index rallied by nearly 3 percent, driven by gains of over 9 percent in the benchmark emerging equities index.

Emerging equities have bounced by 24 percent from four-year lows set on Tuesday.

. . . .

The support of the markets in Brazil, Mexico, S. Korea and Singapore is interesting. Some people will make some major bucks.

But have systemic problems been addressed? I think not.

 

[Jimmy Snyder]

Hopes that the US is in recession were given a hearty boost today as the Commerce Department reported a contraction of 0.3% in the GDP in the last quarter. This is the worst quarter since 2001. Actually, I find that encouraging in the light of predictions by half the people that this would be the worst quarter since the great depression, and the other half predicting it would be the worst quarter since the nation's founding. GDP was forecast to drop 0.5% according to the median of 75 economists surveyed by Bloomberg News. This is inconsistent with my view that economists are completely nuts, but is consistent with the opinion that they are 66% nuts.

We have not had two consecutive quarters of negative growth, so I doubt the NBER will give you what you want this quarter. However, recent events do not point to growth and other indicators have been weak as well, so you should definitely not give up hope for the future.

 

[Astronuc]

Adding to jimmysnyder's great news -

Where Did A.I.G.'s Cash Go?
http://www.nytimes.com/2008/10/30/business/30aig.html

The American International Group is rapidly running through $123 billion in emergency lending provided by the Federal Reserve, raising questions about how a company claiming to be solvent in September could have developed such a big hole by October, The New York Times's Mary Williams Walsh writes.

Some analysts say at least part of the shortfall must have been there all along, hidden by irregular accounting.

"You don't just suddenly lose $120 billion overnight," Donn Vickrey of Gradient Analytics, an independent securities research firm in Scottsdale, Ariz., told The Times.

A.I.G. said it could not provide more information ahead of its quarterly report, expected next week, the first under new management.

Edward M. Liddy, the insurance executive brought in by the government to restructure A.I.G., has already said that although he does not want to seek more money from the Fed, he may have to do so.

Certainly there is a lot of skepticism about the book-keeping at AIG. Makes one wonder about the book-keeping elsewhere.

AIG was bailed out because it was considered solvent, i.e. had capital (collateral), besides being too big to fail. Lehman Brothers was allowed to fail since it was insolvent, i.e. no capital, no collateral. Now some are wondering if AIG actually didn't/doesn't have adquate capitalization.

So how come John McCain isn't campaigning on the successes of the republican stewardship of the economy - and the prosperity that has trickled down to everyone?

 

[Astronuc]

Exxon Mobil posts biggest US quarterly profit ever
http://news.yahoo.com/s/ap/20081030/ap_on_bi_ge/earns_exxon_mobil

HOUSTON – Exxon Mobil Corp., the world's largest publicly traded oil company, reported income Thursday that shattered its own record for the biggest profit from operations by a U.S. corporation, earning $14.83 billion in the third quarter.

Bolstered by this summer's record crude prices, the Irving, Texas-based company said net income jumped nearly 58 percent to $2.86 a share in the July-September period. That compares with $9.41 billion, or $1.70 a share, a year ago.

The previous record for U.S. corporate profit was set in the last quarter, when Exxon Mobil earned $11.68 billion.

Revenue rose 35 percent to $137.7 billion.

On average, analysts expected the company to earn $2.39 per share in the latest quarter on revenue of $131.4 billion.

Company shares fell 69 cents to $73.96 at the open of trade.

Exxon Mobil's results got a boost of $1.62 billion in the most-recent quarter from the sale of a natural gas transportation business in Germany. It also took a special, after-tax charge of $170 million related to a punitive damages award related to the 1989 Exxon Valdez oil spill.

. . . .

The definitely benefitted from high gas and oil prices, which have fallen preciptiously in the last month or so. I doubt the current quarter will be as good.

 

[Astronuc]

Alabama County On Brink Of Bankruptcy
http://www.npr.org/templates/story/story.php?storyId=96344546

Jefferson County is home to Birmingham, the state's largest city, and if it declares bankruptcy, it would be the largest municipal filing in history. The county owes $90 million as payment on bonds, and it does not have the money. There are efforts to have the state and Federal government step in. With or without bankruptcy, the taxes or public service fees will have to increase - at the time there is an economic downturn.

Meanwhile -

Missouri Farming Couple Worries About The Future
http://www.npr.org/templates/story/story.php?storyId=96323476

All Things Considered, October 30, 2008 · Bryan and Christina Truemper are struggling to make a living off their organic farm in Frohna, Mo. They're thinking hard about their future — and the country's future.

They worry about the economy and their finances running the four-acre Farrar Out Farm, and they hope a change in the presidency will make a difference.

In the week before the election, NPR traveled through Missouri as part of a series of stops along the Mississippi River to take the depth of voters and gauge how the economy is affecting them.
. . . .

 

[Proton Soup]

Alabama County On Brink Of Bankruptcy
http://www.npr.org/templates/story/story.php?storyId=96344546

Jefferson County is home to Birmingham, the state's largest city, and if it declares bankruptcy, it would be the largest municipal filing in history. The county owes $90 million as payment on bonds, and it does not have the money. There are efforts to have the state and Federal government step in. With or without bankruptcy, the taxes or public service fees will have to increase - at the time there is an economic downturn.

heh, i live in this county. i think there's a lot more to it than simply "the economy".

 

[Astronuc]

heh, i live in this county. i think there's a lot more to it than simply "the economy".

They did mention something about 4 former county commissioners have been prosecuted for corruption, including one who accepted gifts from an investment banker who handled the sewer bond deal on which the county may default.


Meanwhile - At Planet Money, a multimedia team of reporters tracks down the economists, investors and regular folks who are trying to make sense of the rapidly changing global economy.
http://www.npr.org/templates/story/story.php?storyId=94427042

 

[Proton Soup]

They did mention something about 4 former county commissioners have been prosecuted for corruption, including one who accepted gifts from an investment banker who handled the sewer bond deal on which the county may default.

yes, that is a big part of it.

 

[jal]

How do capitalist manage to survive in a socialised system?
Please read to whole article and pass me a clean hankie

http://www.bloomberg.com/apps/news?pid=20601109&sid=aX6xQJdexEEo&refer=exclusive
Wall Street Won't Surrender on Bonuses, Veterans Say (Update1)
By Christine Harper
``Wall Street bank executives are set to walk away with billions of bonuses at the end of this year,'' Barack Obama, the Democratic presidential candidate, said in a campaign speech on Oct. 28. ``We call that an outrage.''
Gutfreund, the former Salomon CEO, said Wall Street executives are likely to find ways to pay bonuses and manage the political uproar.
``I'm sure there are creative ways,'' he said. ``There are all kinds of devices to cover yourself in terms of paying people.''
Last Updated: October 30, 2008 09:59 EDT

 

[jal]

Insight: The masters lost our trust
By Aline van Duyn
Published: October 30 2008 17:43 | Last updated: October 30 2008 17:43

The focus now has become the nine US banks which are receiving $125bn of public money. They have spent or reserved $108bn for employee pay and bonuses in the first nine months of 2008, nearly the same as last year. Henry Waxman, chairman of the House of Representatives oversight committee, has rightly asked them to explain this and has questioned the ”appropriateness of depleting the capital that taxpayers just injected into the banks through the payment of billions of dollars in bonuses, especially after one of the financial industry’s worst years on record”. This issue is the one that people not working on Wall Street talk about the most – I have had discussions about it at the school gate and in practically every social encounter.
For Wall Street to really restore the confidence, it needs to understand why its pay make others not just bristle, but angry. Getting paid as much as last year looks really bad, it is as simple as that. Indeed, with such a large amount of their expenses eaten up by compensation costs, curbing payouts last year and the year before would have presumably left the banks is a less dire financial condition than they are now.
The story of Sherman McCoy ends in utter disaster, the dire consequence of his initial decision to avoid assuming responsibility for a crime. Behaving as if it’s business as usual when it clearly is not can have devastating effects
Copyright The Financial Times Limited 2008

That bonus money is coming from your grandma's saving, from your pension account, from an IOU that your kids will need to pay for.
jal

 

[Astronuc]

7.5 million homeowners 'underwater'
http://money.cnn.com/2008/10/30/real_estate/underwater_borrowers/index.htm
Nearly a fifth of U.S. borrowers owe more on their mortgages than their homes are currently worth - and that number is growing!

NEW YORK (CNNMoney.com) -- At least 7.5 million Americans owe more on their mortgages than their homes are currently worth, according to a real estate research firm's report released Friday.

In other words: If they sold their homes today, they'd have to bring a check to the closing. Ouch.

Another 2.1 million people stand right on the brink, according to the report by First American CoreLogic. Their homes are worth less than 5% more than the mortgages they're paying on them.

The technical term for this phenomenon is negative equity; more colloquially, these borrowers are often referred to as being "underwater."

"Being underwater leaves homeowners vulnerable to foreclosure," said Mark Fleming, CoreLogic's chief economist.

That's because these borrowers are left with no home equity to tap - via refinancing or a home equity loan - if they run into financial trouble. Negative equity has contributed much to the soaring increase in foreclosures over the past year.

The report on the growing problem of negative equity is a conservative estimate. Some organizations, including Moody's Economy.com, estimate that as many as 12 million borrowers may be underwater.
. . . .

This is an indication of the severity of one of the fundamental weaknesses in the US economy.


Mortgage Plan May Irk Those It Doesn’t Help
http://www.nytimes.com/2008/10/31/business/31bailout.html

As the Treasury Department prepares a $40 billion program to help delinquent homeowners avoid foreclosure, it confronts a difficult challenge: not making the plan too tempting to people like Todd Lawrence.

An airline pilot who lives outside Norwich, Conn., Mr. Lawrence has a traditional 30-year mortgage that he has no trouble paying every month. But, thanks to the plunging real estate market, he owes more on his house than it is worth, like millions of other people.

If the banks, which frequently lent irresponsibly, and many homeowners, who often borrowed irresponsibly, are getting government assistance, Mr. Lawrence says he believes sober souls like himself are also due a break.

“Why am I being punished for having bought a house I could afford?” he asked. “I am beginning to think I would have rocks in my head if I keep paying my mortgage.”

The plan, still under development by Treasury, is part of the economic rescue package passed by Congress earlier this month. It is aimed at aiding up to three million beleaguered homeowners by reducing their monthly payments.

Washington and Wall Street are frantically seeking to stabilize markets by curtailing the onslaught of foreclosures. There are now at least four major plans to aid homeowners. But experts say it is difficult to design these programs in ways that reduce the indebtedness of the distressed without giving everyone else a reason to mail the keys back to their lenders.

“If the lunch truly is free, the demand for free lunches will be large,” said Paul McCulley, a managing director with the investment firm Pimco.

. . . .