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AUTOMOTIVE Toyota recalls 1.13 million vehicles


Toyota will recall 1.13 million CorollaandMatrix cars for a flawthatU.S. regulators saidmay cause stalling “at any speed without warning.” The recall affects vehicles from the 2005-2008 model years in the United States and Canada and follows at least three reported accidents linked to the defect. The action adds to record recalls in the past year by Toyota,


including more than 8 million vehicles worldwide for flaws related to unintended acceleration. Therecall also covers about200,000ofGeneralMotors’Pontiac Vibe


hatchbacks, according to a statement from GM. Vibes and Matrixes were manufactured in a GM- Toyota joint venture in California. —Bloomberg News


LEGAL


FCC appeals ruling on its indecency policy The Federal Communications Commission asked an appeals court


Thursday to reconsider its ruling striking down the agency’s indecency policy on “fleeting expletives” heard on broadcasts. The FCC’s request to theU.S. Court of Appeals for the 2nd Circuit in


New York came after a three-judge panel last month called the policy unconstitutionally vague and said it could chill otherwise acceptable speech.News Corp.’s Fox Television, CBS Corp.’s CBS Broadcasting and others had challenged a 2004 FCC ruling that on-air expletives that were not bleeped out were indecent and their use could be penalized. In a court filing, the agency said the decision “threatens to have a


wide-ranging adverse impact on the FCC’s ability to enforce federal statutory restrictions on the broadcast of indecent material.”


—Reuters NIKKI KAHN/THE WASHINGTON POST Tamaira Shaw, 20, a student at theUniversity of the District of Columbia, ran into trouble with a credit card during her freshman year. Credit reforms reach campuses


CARD ISSUERS RESTRICTED


Legislation aims to protect students


BY YLAN Q. MUI Credit card reform came too


late for 20-year-old Tamaira Shaw. The junior at the University of


the District of Columbia got a preapproved credit card from Bank of America in the mail her freshman year of college. It had her name on it and a $500 limit, and she took it as a license to spend. Within three days, she bought a cellphone, clothes and textbooks — and maxed out her card. Her mother is still helping her pay off the balance — plus hundreds of dollars in finance charges and fees. “They randomly sent it tome,”


Shaw recalled this week as she started another semester atUDC. “I was just excited.” The landmark federal legisla-


tion that overhauled the credit card industry is reaching into college campuses to protect stu- dents like Shawas they return to school and attempt to juggle not only their education and social lives but also howto pay for it all. The law, which was passed in


2009 and phased in this year, bans issuers fromproviding cred- it cards to people younger than 21 unless another adult co-signs for it or the student can show an independent source of income. It also prohibits the companies from offering students freebies, such as T-shirts or pizza, in exchange for signing up for a


card on campus or at school events, and college groups are required tomake public any part- nerships they have with card issuers. Consumer advocates have long


criticized the industry forwooing young people who often don’t realize the risks involved, suck- ing them into a vicious cycle of debt. “Their goal is to hook you on credit,” Ed Mierzwinski, con- sumer program director of the advocacy groupU.S. PIRG, said of the industry's businessmodel. The new credit card law was


designed to target what lawmak- ers dubbed “unfair or deceptive” practices by issuers and imple- mented the most sweeping change in the history of the industry. Among the most ag- gressive provisionswere banning interest rate increases onexisting balances and prohibiting issuers from raising rates when their customers miss payments on an unrelated account, such as a mortgage or an electric bill. The final phase of the law,which took effect Sunday, limits penalty fees and requires gift cards to be honored for five years. The legislation spells out


unique protections for young consumers, an attractive market for card companies seeking to growtheir business.According to the student loan company Sallie Mae, about 42 percent of college students have a credit card. In 2008, the most recent data avail- able, college students graduated with an average credit card debt of more than $4,100, up from $2,900 four years earlier. And only 15 percent of freshmen had a zero credit card balance, plum- meting from 69 percent in 2004, SallieMae said. “If you were a student and you


could fog a mirror, you could get a credit card,” said Adam Levin,


co-founder ofCredit.comand for- mer director of the New Jersey Division of Consumer Affairs. Many students use credit cards


for legitimate reasons, such as buying textbooks and meals or building a credit history. But lawmakers and consumer groups have attacked issuers for inap- propriately marketing to stu- dents by holding giveaways on campus, mining alumni associa- tion databases and negotiating lucrative partnerships to provide university-branded credit cards. Several large issuers have been dialing back their promotions. Chase said it stopped using stu- dent mailing lists in 2006 and ended marketing on campuses and at athletic events by 2008. Bank of America said it no


longer sets up marketing tables at colleges, but it still maintains partnerships with about 700 alumni associations, athletic de- partments and some Greek orga- nizations to offer college-brand- ed credit cards to recent gradu- ates. For example, it has a $2.8 million, seven-year contract with the Georgetown Alumni Associa- tion and its student credit union, which gives it access to the groups’ mailing lists and pays a $50,000 bonus if the bank signs up 1,800 accounts in a year.On its Web site, the alumni association says the contract helps students because it pays for reunions, grants and scholarships, as well as a Sept. 11 memorial garden. The contract bans on-campus marketing and limits the number of direct-mail and e-mail cam- paigns. Other Washington area uni-


versities, including Catholic Uni- versity and Howard University, have similar agreements. A spokeswoman for Howard said the school is renegotiating a cred- it card contract with its alumni


affairs department to ensure that students do not take on unneces- sary debt, but she declined to elaborate. The college has also launched two financial-literacy programs for students, she said. Under the new law, card issu-


ers must submit any contracts they have with collegiate groups to the FederalReserve,whichwill compile a report detailing the nature of the relationship. A Fed representative said the central bank is reviewing more than 1,000 agreements. Consumer ad- vocates said they hope the legis- lation will increase transparency for such partnerships. Still, sometimes even the


strictest oversight cannot stop students frommakingmistakes. Melanie Mirowitz, 21, a senior


at American University, said she got a credit cardwith the blessing of her parents. They thought it would be a good idea to help build her credit history—as long as she used the card responsibly, she said. But paying the bill slipped her mind for a few months, and she racked up $500 in penalty fees. “That wasn’t a good conversa-


tion,” said Mirowitz, who now tries to pay her balance on time each month. “They don’t really explain it to you how it impacts you.” AUlawstudent Steve vonBerg,


30, said his credit card initiation occurred shortly after he gradu- ated from college. He racked up $7,000 in debt to fund a start-up business, which eventually shut down. It took him four years to pay off the card, he said. Now older and wiser, he of-


fered this advice to the new crop of students learning to juggle their budgets: “Don’t take it into barswith you.Realize it’s not free money.” muiy@washpost.com


Report on Fannie, Freddie counters assumption guarantors in collapse


BY ZACHARY A. GOLDFARB AreportThursday by the feder-


al regulator overseeing Fannie Mae and Freddie Mac put a new wrinkle in acommonexplanation for why the mortgage giants col- lapsed and could complicate ef- forts to restructure them. For instance, Treasury Secre-


tary Timothy F. Geithner has in part blamed the fact that the companies acted like huge hedge funds — borrowing money from the financial markets and then buying up hundreds of billions of dollars of mortgage bonds. “They were allowed to expand and man- age their investment portfolios without regard to the risk they posed to the system,” Geithner said a fewmonths ago. But Thursday’s report from the


Federal Housing Finance Agency said that Fannie and Freddie’s portfolios weren’t the major driv-


Agency probes firms’ roles as


er behind the companies’ losses. Rather, it was the role the companies played as a guarantor of mortgages that led to most of their losses, theFHFAsaid.Geith- ner has also pointed to the weight of souring guaranteed loans as a source for the companies’ trou- bles. The regulator’s pronounce-


mentcouldbesignificant.As poli- cymakers begin to focus on what might replace Fannie and Fred- die, they talk about retaining a government role as guarantor of mortgages but reducing or elimi- nating any government-backed mortgage investment portfolios to protect taxpayer dollars. In a speech last week on the


future ofU.S. housing policy, Gei- thner said there would be a continued “wind down” of Fan- nie’s and Freddie’s portfolios. But he added, “There is a strong case to be made for a carefully de- signed guarantee in a reformed system, with the objective of pro- viding a measure of stability in access to mortgages, even in fu- ture economic downturns.” Federal officials seized Fannie and Freddie in September 2008


as they veered toward collapse, and they have received about $150 billion in taxpayer aid since then. The companies started losing


money in late 2007, as the hous- ing market’s slide accelerated, and have lost nearly $230 billion in total. Fannie and Freddie each


played two roles in the market. In the guarantee business, they took loans made by banks, pooled them into a security, insured the security against losses and then sold the security to investors. In the portfolio business, they boughtandheldmortgage securi- ties, some of which were guaran- teed and some of which weren’t. According to the FHFA report,


bad investment choices account- ed for $21 billion, or 9 percent, of Fannie and Freddie’s losses. By contrast, the companies lost


$166 billion in their guarantee business, or 73 percent of total losses. One reason that the companies


lost so much more in their guar- antee business was that it was much bigger. Fannie and Freddie simply collected a fee for putting


their stamp of approval on a mortgage security, so they could essentially guarantee an unlimit- ed number of such securities. They ultimately guaranteed near- ly $4 trillion in mortgages. Fannie and Freddie’s invest-


ment portfolios, on the other hand, areworth nearly$2trillion. Both sides of the companies


suffered for essentially the same reason. Fannie and Freddie in- creasingly bought and guaran- teed risky loans to compete with private banks that were offering exotic products such as loans that didn’t require income or employ- ment verification. “Nontraditional and higher-


risk mortgages concentrated in the 2006 and 2007 vintages ac- count for a disproportionate share of credit losses,” the FHFA said. “However, house price de- clines and prolonged economic weakness have taken a toll on the credit performance of traditional mortgages.” The FHFA says that since the


government took over the firms, the companies have stopped these practices. goldfarbz@washpost.com


ANDREW HARRER/BLOOMBERG NEWS


Grand TetonNational Park inWyoming’s JacksonHole is the site of the Federal Reserve Bank of Kansas City’s annual symposium.


On the agenda:High-altitude conversation JACKSON,Wyo.—I’minGrand TetonNational Park for the Federal


Reserve Bank ofKansas City’s annual symposium, one of themost important events for theworld’smonetary-policymakers. The conference begins Thursday evening, although participants


started trickling inWednesday night. It is an odd scene here in the lobby of the Jackson Lake Lodge.AxelWeber andAllanMeltzer are in quiet conversation across the room.Nearby is a guy trying to get his kids organized to go hiking, almost certainly oblivious to the fact that he is standing next to the secondmost powerful central banker in Europe and the leading historian of the FederalReserve. But beyond giving a bunch of economists (and the reporterswho


cover them) a chance to breathe cleanmountain air, this conference serves a serious purpose. The academic papers presented here can influence decision-makers’ thinking aboutmonetary policy.And the more private conversations, overmeals during the conference and at the BlueHeron Lounge in the evenings, serve an important function of their own, as people hash out views onmonetary policy and the economy in a relaxed setting. (Itwas in a private conference room upstairs, incidentally, that FederalReserve Chairman Ben S. Bernanke, Treasury Secretary Timothy F.Geithner and others came upwith some of their initial responses to the financial crisis inAugust 2007). The question in 2007waswhether the turmoil that had begun a few


weeks earlier in creditmarketswould havemuch impact on the broader economy. (It did.) In 2008, the questionwas howtheU.S. governmentwould dealwith the imminent failure of FannieMae and FreddieMac. (It put themunder conservatorship, an effective government takeover, twoweeks later.) Last year, the questionwas whether Bernankewould be nominated to a second termas Fed chairman (PresidentObamamade the appointment just a fewdays later). This year, the question on everyone’smind is: Should the Fed buy


hundreds of billions of dollars in securities, ballooning its balance sheet further, in an effort to prop up the faltering economy? To put it a differentway, Iwas speaking to an economist at


breakfast thismorningwho noted that the official topic of the symposiumis “Macroeconomic Challenges: TheDecadeAhead.” The real question people are pondering, he said, is notwhatmonetary policywill look like in the 10 years ahead but in the next 10weeks. —Neil Irwin


ALSOINBUSINESS


l Simpson apologizes for re- marks: The co-chairman of a commission on the U.S. budget deficit came under fire after an off-color remark that likened the payment of government retire- ment benefits to milking cows. Women’s groups and some law- makers called for the ouster of Alan Simpson, a Republican who serves on the bipartisan panel created by President Obama. Simpson wrote this week in an


e-mail to a critic that the Social Security retirement program has reached the point “where it’s like a milk cow with 310 million tits.” He issued an apology. Sen. Bernard Sanders (I-Vt.)


and Rep. Peter DeFazio (D-Ore.) said the remarks demeaned older Americans and disabled people who receive Social Security bene- fits and asked that Simpson be removed from the panel. The National Organization for Wom- en said Simpson was “not fit to


lead” the National Commission on Fiscal Responsibility and Re- form.


l HP-Dell bidding war heats up: Hewlett-Packard has again raised its bid for 3Par above an offer from rival Dell, offering $27 per share in cash, or about $1.69 billion. That’s nearly three times what 3Par had been trading at before Dell’s initial bid last week. Earlier Thursday, Dell said


3Parhadaccepted its second offer of $24.30 per share in cash, or $1.52 billion. Dell made its first offer, $18 per share, for 3Par on Aug. 16, and HP respondedMon- day with a bid of $24 per share. HP and Dell are looking at


3Par as a way to build up their “cloud computing” businesses, which involve delivering soft- ware, data storage and other ser- vices to customers over the Inter- net.


—From news services Political Economy washingtonpost.com/politicaleconomy


FRIDAY, AUGUST 27, 2010


10-YEAR TREASURY UP $4.80 PER $1,000, 2.48% YIELD


CURRENCIES $1 = 84.45 YEN; EURO = $1.272


DIGEST


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