'Subprime' named Word of the Year

The American Dialect Society chose the word associated with the mortgage mess over other business terms such as 'Facebook', 'green' and 'Googleganger.'

CHICAGO (AP) -- Even the American Dialect Society knows how risky home mortgages are these days.
The group of wordsmiths chose "subprime" as 2007's Word of the Year at its annual convention Friday.
"'Subprime' has been around with bankers for awhile, but now everyone is talking about 'subprime,"' said Wayne Glowka, a spokesman for the group and a dean at Reinhardt College in Waleska, Ga. "It's affecting all kinds of people in all kinds of places."
About 80 members of the organization spent two days debating the merits of runners-up "Facebook," "green," "Googleganger" and "waterboarding" before voting for an adjective that means "a risky or less than ideal loan, mortgage or investment."
The choice signifies the public's concern for a "deepening mortgage crisis," the society said in a statement.
Mortgage stock picks tanked in 2007
"Facebook," as a noun, verb or adjective, was popular with younger linguists, Glowka said.
Several people lobbied for "green," which "designates environmental concern," but the term has been around for years, he said. The word topped the 2007 "Most Useful" category, one of numerous subgroups the society chooses.
The group also decided that although "waterboarding," an interrogation technique that simulates drowning, gained a lot of attention during recent attorney general confirmation hearings, it was a bigger deal in 2004, Glowka said.
But what's a "Googleganger?"
A play on "doppelganger," the word is "a person with your name who shows up when you Google yourself," according to the society.
Glowka said he assessed many Google (GOOG, Fortune 500)-related words.
"Just Google 'Google' and you'll turn them up," he said. The ghostly double of a word won the 2007 "Most Creative" designation.
As for "subprime," Glowka said it is an odd word -- at least as far as linguists are concerned.
The prefix "sub" translates roughly to "below the standard," while "prime" means something close to "the best."
So, according to Glowka, the word really means "far below the best."
"People were saying that students were referring to their tests, 'I'm going to subprime this; I'm going to mess it up,"' he said.
The American Dialect Society, founded in 1889, comprises linguists, grammarians, historians and scholars, among others. The society began choosing words of the year in 1990 for fun, not in an official capacity to induct words into the English language.
In 2006, the organization chose "plutoed," which means "to be demoted or devalued."

Recession may already be here

Economists shift from wondering if there will be a recession to asking if the U.S. economy has already shifted into reverse.
By Chris Isidore, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- The question for many economists is not if the U.S. economy will fall into a recession. It's whether it already has.
The formal recognition of a start of a recession probably wouldn't come for at least six months if not more than a year, as official judges from the National Bureau of Economic Research (NBER) pour through various economic readings.
But top economists from two of the major Wall Street firms - Merrill Lynch and Goldman Sachs - say recession is likely already here.
The tipping point for both economists was the report released last Friday that showed a sharp jump in the unemployment rate in December, coupled with little growth.
"Friday's employment report strongly suggests that an official recession has arrived," wrote David Rosenberg, North American economist for Merrill, in a note this week entitled "Recession a reality."
He wrote that history points to a recession when the average length of the work week fell in back-to-back quarters, as it did in the third and fourth quarters of 2007. And he said at no time in the past 60 years has there been a half-percentage point climb in the unemployment rate from the low point without a recession following. The latest unemployment reading stands at 5.0 percent, up from 4.4 percent in March.
In case of emergency, slash rates
The traditional sign of a recession is two or more quarters when economic activity declines rather than grows. That hasn't happened - the final reading of growth in the third quarter came in at a healthy 4.9 percent.
The NBER's calculation of when a recession starts and when it ends is far more refined than the two-quarters-of-economic-decline test. It looks at a number of factors, such as employment, real personal income and manufacturing, and comes up with a date pegged to a specific month, rather than a quarter. For example, it judged that the most recent recession ran from March 2001 to November 2001.
There's wide agreement among economists that growth in the fourth quarter fell sharply from third quarter levels, although most still forecast slim growth in the period. But many are forecasting a better-than-even chance that some quarters in 2008 will show declines.
Goldman's senior U.S. economist Jan Hatzius is one of those saying a 2008 recession is likely, with roughly a two-in-three chance. Hatzius is worried about the three-month average for unemployment, which has jumped more than one-third of a percentage point from its low.
"Whenever you've tripped the one-third-percentage point barrier, it's an [recession] indicator that's ten out of ten," he said.
Hatzius is expecting the recession will be fairly mild, lasting only 6 months, with the economy declining by no more than 1 percent in any quarter.
Recession cures - plans to goose growth
But that is based on his assumption that the Federal Reserve cuts rates deeply and quickly, to 2.5 percent from its current 4.25 percent. He also believes that given election-year pressures, there's likely to be some form of tax cut or rebate to try stimulate the economy.
"If the data is every bit as bad as we're expecting and the Fed for some reason refuses to respond, you could see a more severe recession," Hatzius said.
Hatzius also said he believes that the downturn in housing is nowhere near being played out. Hatzius is forecasting that home prices end up plunging 20 to 25 percent below peak levels. And he said that a further sharp decline in housing prices will hit both consumer spending and credit markets, which are two more reasons he's forecasting a recession.
Cautious optimism
Of course, there are still economists who believe that the economy is more likely to avoid a recession than sink into one. But even they admit to being more concerned than they were a few weeks ago.
"Our own recession-warning model currently indicates that the odds of a recession occurring in the next six months are slightly greater than 50 percent," said the monthly economic outlook from Wachovia. "That said, we still believe the economy will avoid an outright downturn, as a good part of December's weakness appears to be tied to special factors." It cited severe winter storms in much of the country as one of the issues distorting the latest readings.
Even some other economists who believe a recession is likely, such as Harvard University's Martin Feldstein, the president of the NBER, don't believe the economy has already started to shrink.
Bush tax cut guru: Recession now likely
"Of course these numbers can be revised, but as long as we have positive numbers for employment growth - very weak but still positive - and for industrial production, when the business-cycle dating committee looks at the evidence, they wouldn't say we're currently in a recession," he said.
Feldstein, one of the fathers of the Bush administration tax cuts passed early in his tenure, is advocating tax cuts and further Fed cuts to respond to the current weakness, even if the economy doesn't slip into recession.
Economist Bob Brusca said that while he thinks there is now a better than even chance that there will be a recession, that doesn't mean the Fed can start slashing rates because of the continued threat of inflation.
"A lot has yet to happen if recession is to kick in," Brusca said. "It may yet happen. But for policy that is not the issue. Policy needs to react to circumstances and that refers to both the inflation and growth profiles."
Other economists point out it's almost irrelevant as to whether the economy fell into a recession in December, or does so a few months from now.
Bernard Baumohl, executive director of the Economic Outlook Group, said that even if the economy avoids a recession, it will do so with very slow growth in 2008. He said it's almost immaterial from that perspective if there is a recession or not.
"It'll have the same painful effect on businesses and households," Baumohl said.

Stocks pull off comeback

Wall Street bounces back as investors scoop up shares hit in the recent selloff.
By Alexandra Twin, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- Stocks snapped back Wednesday, erasing earlier losses, as investors set aside worries about the economy to scoop up a variety of issues battered in the recent selloff.
The Dow Jones industrial average (INDU) added 1.1 percent. The broader S&P 500 (INX) index gained almost 1.4 percent and the Nasdaq (COMPX) composite gained 1.4 percent.
Stocks had flip-flopped on both sides of unchanged throughout the session Wednesday earnings forecast, oil and gold prices near records and Goldman Sachs' forecast that the economy may already be in a recession.
Stocks tumbled again in the afternoon, led by the financial sector. But in the last hour of trade, investors staged a recovery.
"It's the old rubber-band effect, where the market was very compressed and just snapped back from a vastly oversold condition," said Steven Goldman, market analyst at Weeden & Co.
Treasury prices slumped, boosting the corresponding yields. The dollar bounced back versus other major currencies.
After the close, Dow component Alcoa (AA, Fortune 500) reported higher quarterly earnings that topped estimates, starting off the fourth-quarter reporting period on a plus note. Shares of Alcoa gained around 4 percent in after-hours trade. (Full story).
Also after the close, Target (TGT, Fortune 500) said its CEO will retire in May amid slumping sales. He will be replaced by the retailer's president. Target shares were little changed in after-hours trade. (Full story).
There are no big market-moving earnings or economic reports scheduled for Thursday, with a speech from Fed Chairman Ben Bernanke the biggest event. Bernanke is due to speak Thursday afternoon in Washington, D.C., on the economic outlook and monetary policy.
Recession S.O.S. - goosing growth
In the first five trading days of the year, through Tuesday's close, the S&P 500 lost about 5.3 percent, while the Dow industrials fell 5.1 percent and the Nasdaq composite fell 8 percent.
"It's been a bad start to the year," said Greg Church, president at Church Capital.
Church said a bigger snapback could be in the works in the days ahead, but that it depends a lot on what the financial sector does, since the broad market is taking its cue from the financial sector.
The financial sector led the late-session turnaround Wednesday, with JP Morgan (JPM, Fortune 500), Citigroup (C, Fortune 500), Morgan Stanley (MS, Fortune 500) and Merrill Lynch (MER, Fortune 500) all recovering from earlier losses.
In corporate news, MBIA (MBI) said it will cut its dividend and raise $1 billion from the sale of notes, as a means of raising money and avoiding a ratings downgrade. The bond insurer also said that regulators have probed how thoroughly it disclosed risks, and that regulators are now looking at the $1 billion investment it received in December from Warburg Pincus.
MBIA shares fell 4 percent, recovering from bigger losses thanks to the end of the day turnaround.
Countrywide Financial (CFC, Fortune 500) slipped for a second session after the mortgage lender said that the delinquency and foreclosure rate of home loans in its portfolio jumped in December. Shares fell 6 percent and dragged on Washington Mutual (WM, Fortune 500).
On the upside, E*Trade Financial (ETFC) gained almost 7 percent. The company said it sold $3 billion in mortgage-backed securities and municipal bonds and that it is getting out of its institutional trading business as it attempts to accelerate its turnaround effort.
Also on the upside, chemical maker DuPont (DD, Fortune 500) said that it will post stronger-than-expected earnings in the fourth-quarter 2007 and full-year 2007, as well as full-year 2008, despite the slowing economy. That sent shares of the Dow component up around 4.8 percent.
Market breadth was mixed. On the New York Stock Exchange, winners topped losers 3 to 2 on volume of 2.06 billion shares. On the Nasdaq, decliners narrowly edged advancers on volume of 2.86 billion shares.
Bracing for bad bank earnings
Investment bank Goldman Sachs added to the growing talk of a pronounced slowdown, saying that recent data suggest the economy is falling into a recession.
Goldman Sachs said that as a result of this slowdown, the Federal Reserve is likely to cut the fed funds rate, a key short-term lending rate, to 2.5 percent by late 2008. The fed funds rate currently stands at 4.25 percent after the Fed cut it three times in a row.
Some on Wall Street are calling for the Federal Reserve to step in and take action ahead of the next policy meeting at the end of the month. (Full story).
St. Louis Fed President William Poole said that fundamentals remain strong and that it is too early to tell if the problems in the housing market will push the economy into recession, Briefing.com reported. Poole was a voting member of the Fed's policy committee in 2007.
In cash of emergency, slash rates
Stocks tumbled Tuesday, extending the abysmal start to the new year, on speculation that Countrywide Financial could file for bankruptcy and a warning from AT&T that it's consumer business is suffering. The corporate news played into growing worries that the economy could be headed for a recession amid the credit and housing market fallout.
Overall, the three major gauges have now fallen at least 10 percent off the recent highs hit in October on a closing level - the technical definition of a market correction. That can spark a big rally, as in November, with people using the selloff as an opportunity to jump back in at lower levels. Or a correction can lead to more selling and eventually a bear market, defined as a drop of 20 percent off the highs.
Treasury prices slumped, raising the corresponding yields on the 10-year note to 3.82 percent from 3.77 percent late Tuesday. Treasury prices and yields move in opposite directions.
In currency trading, the dollar gained versus the yen and euro.
U.S. light crude oil for February delivery fell 66 cents to settle at $95.67 a barrel on the New York Mercantile Exchange Tuesday. The price of oil seesawed following the morning release of a mixed oil inventories report.
COMEX gold for February delivery rose $1.40 to settle at $881.70 an ounce, nearing record highs hit on Tuesday.

Bank of America's Countrywide trap

The financial behemoth's $2 billion investment in the mortgage lender is disappearing fast. Too bad its options are limited.

NEW YORK (Fortune) -- Late last summer, Bank of America and its deal-hungry chief Kenneth Lewis won kudos for a $2 billion investment in Countrywide Financial, the once high-flying mortgage lender hit hard by the housing slump.
In one stroke, Lewis erased his reputation as a serial over-payer with the kind of convertible preferred stock deal that arbitrage traders dream of. In exchange for its $2 billion, Bank of America secured the right to buy Countrywide (CFC, Fortune 500) stock at $18, a tidy 21 percent discount over the price at the time. Lewis, it seemed, had deftly locked in an instant $424 million profit for the bank.
Nobody's congratulating Bank of America these days. As Countrywide shares tank and speculation mounts that the company will be forced into bankruptcy, the bank's stake has plunged in value, to about $560 million. Now Bank of America faces a tough choice: It can buy Countrywide outright, pour even more money into the lender, or simply bide its time and hope for the best.
Whatever it does, Bank of America no longer appears so savvy. And Lewis, who's been criticized for paying top dollar for, among other companies, credit-card lender MBNA ($35 billion) and U.S. Trust ($3.3 billion), is once again looking like a spendthrift.
Bank of America and Countrywide declined comment.
Their deal looked so simple when it was announced in August. In return for its cash, Bank of America (BAC, Fortune 500) got a 7.25 percent yield on convertible preferred stock and the right to buy 111 million Countrywide shares, equal to a 16 percent stake. The bank also got the right of first refusal on any future Countrywide deals and stood in front of the creditors' line should the lender go bankrupt.
Lewis and Countrywide CEO Angelo Mozillo, known for his perpetual tan and wide grin, somberly proclaimed the importance of the investment in stabilizing the then-turbulent mortgage secondary markets. The markets seemed to agree.
The celebration didn't last long. The mortgage market has continued to tumble along with Countrywide's stock. Meanwhile, the company faces a barrage of federal and state investigations of its lending and accounting practices. As Countrywide's troubles have mounted, so has speculation that it would file for bankruptcy.
On Tuesday, for the second time in five months, Countrywide was forced to take the unusual move of issuing a press release denying that it was planning to seek protection from its creditors. On Wednesday, the Calabasas, Calif.-based lender released what it claimed was further proof of its stability: The amount of mortgages funded had risen above expectations, which is ordinarily good news.
Investors, however, weren't buying it, and for good reason. Buried deep in Countrywide's release were some troubling numbers: Foreclosures had doubled to 1.4 percent of unpaid principal at its key servicing unit. Late payments also skyrocketed, to 7.2 percent of unpaid balances, up from 4.6 percent. Countrywide shares have plunged 11 percent since this week's damage control began.
Now Bank of America faces a quandary: The value of its investment is falling fast, but any move - whether to buy Countrywide, invest more money, or sit tight - carries a host of potential liabilities.
If it buys Countrywide, Bank of America gets a nationally known franchise and potentially millions of clients for its suite of higher-margin consumer banking offerings, to say nothing of becoming America's most important home lender and the further economies of scale that brings.
On the downside, Bank of America would also get a lender whose credit quality is deteriorating rapidly - and who has sworn off high-margin subprime lending, essentially eliminating what was once its most attractive business. Countrywide is now banking on razor-thin margin conforming loans.
There is also the matter of Bank of America's appetite for Countrywide's portfolio. Ten percent of the lender's portfolio is invested in subprime mortgage securities, including billions worth of securitized and "raw" home equity loans (known as "HELOCS" on Wall Street) and adjustable rate mortgage securities, or ARMS, whose interest rates might prove very troubling to struggling homeowners.
This risky mix may be too much for credit-sensitive Bank of America to stomach. It could try to shed billions of dollars worth of these securities, but finding buyers would be difficult: There's zero appetite for these investments among potential buyers, who would accept nothing short of fire-sale prices. Brokers like Merrill Lynch (MER, Fortune 500), Morgan Stanley (MS, Fortune 500) and Citigroup (C, Fortune 500), meanwhile, have their own, well-documented balance sheet problems.
Option B - dumping more money into Countrywide - is unlikely too, at least in the short run. Upping its investment means believing that Countrywide's operating environment is stabilizing or even may slightly improve. To do that, however, Bank of America has to overlook Wednesday's disclosure about rising foreclosure and late payment rates. That won't be easy.
This leaves the third option, the one that Bank of America is most likely to pursue: Keeping its fingers-crossed. Still, it can't be easy for Bank of America's shareholders to watch more than billion dollars evaporate on what was clearly no more than a timing trade on the mortgage market.
They've already watched Bank of America shares fall 25 percent since October, as concerns grow over the health of the U.S. banking sector.