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Business Comment

Stephen Foley: Why are consumers gloomy? Because the Republicans tell them they are

They know defeating Obama hinges on a weak economy

US Outlook The American consumer is "a riddle wrapped inside an enigma", one economist wrote, when we learnt that consumer confidence has dipped again. She certainly is a riddle. The outlook is actually brightening, and quickly. The unemployment rate, now down to 8.3 per cent, is at a three-year low. Income growth has been rising, inflation falling and mortgage rates could not be any lower. GDP growth in the final three months of 2011 was no blow-out, but at 2.8 per cent it was no bust either. And though the US housing market is still moribund (of which, more below), this is hardly new news since the New Year.

The decline in the Conference Board's confidence index was small – it slipped from 64.8 in December to 61.1 this month – but there really shouldn't have been a decline at all. Why so gloomy?

The question is even more perplexing when we look back across the Atlantic to the UK, where economic growth has evaporated, yet where consumer confidence actually ticked higher in January.

Consumer confidence, it seems, is a poor indicator of what is going on in reality for household finances. The rise this month in the numbers of Americans saying jobs are "hard to get" cannot be squared with the improvement in non-farm payrolls in January, which was reported yesterday.

More likely, the consumer confidence figures reflect back the headlines of the month. And if there is one thing guaranteed to turn Americans to the gloomy side it is the procession of Republican presidential candidates, in TV debate after debate (after debate after debate), declaring that the US economy is in the tank and only they have the skills to pull it out.

All the candidates sense and all the political scientists know that the Republicans' hopes for defeating President Barack Obama in November hinge on the US economy still being weak, or more accurately on the public still feeling like it is weak. The gentlemen on the Republican stage know what they must do.

Talking down an economy can actually push down an economy; it's one of the reasons financial journalists should be very careful not to bandy the word "recession" around when we are not technically in one. Candidates for office have no such qualms. So let's all be thankful for the next few weeks, when there is a gap in the calendar of Republican primaries and no debates scheduled. Perhaps we can all get our shredded nerves back.

Let's co-operate to help struggling homeowners

Will state prosecutors and America's largest banks sign up to a $25bn (£16bn) legal deal designed to bring some relief to the ailing housing market here? They should.

For the Obama administration, which is corraling the 50 states' attorneys-general into signing on, the deal is a chance to offer some financial relief to homeowners. For the banks, it is a chance to draw a line under the so-called "robosigning scandal".

This is the scandal over fraud and incompetence in US banks' foreclosure processes, although, actually, processes is not the right word. Chaos would be a better term.

In the rush to hand out mortgages during the credit boom, and in the rush to repossess homes after it went bust, paperwork went missing, administrators forged documents and many foreclosures were signed off by machine instead of by a human, as is legally necessary. Anyone being foreclosed upon in America now goes straight to a lawyer to try to dig up evidence of wrongdoing by their bank. This is slowing down the foreclosure process and piling up the costs for banks. State attorneys-general have launched criminal investigations.

So you can see why it would be in the interests of banks to get a pass out of this morass by sealing a one-off deal, even though the number of real injustices in the foreclosure system hardly adds up to $25bn, or even to the $5bn that will be set aside for victims. The other $20bn will be shared among about 1 million responsible borrowers to reduce their negative equity, an average $20,000 cheque to pay off some of the principal of the loan.

The banks are already resigned to taking their lumps. The biggest mortgage banks – Ally Financial, Bank of America, JPMorgan Chase, Citigroup and Wells Fargo – are all in, and smaller players such as Britain's HSBC look likely to join. They are being punished really for their role in recklessly pumping up the housing market in the first place. Robosigning is not the reason for the epidemic of foreclosures that has made Americans so angry, and the robosigning settlement won't be enough to douse that fury. If the deal does get done, it will be decried as the banks getting off lightly.

Indeed, some of the states would prefer to pursue their own settlements, and believe they could win substantially more from the banks.

This weekend is the deadline for the 50 states to sign up to the latest iteration of the deal but California, at the epicentre of the housing market collapse, doesn't seem to be on board. That makes the prospects uncertain.

That would be a shame. Despite rock-bottom interest rates here, borrowers suffering negative equity cannot readily refinance to take advantage. Principal reduction is one of the keys to unlock the problem.

Let's not pretend $20bn is a big sum. After four years of falling house prices, 12 million Americans are underwater on their mortgage, with total negative equity of $700bn. But with Congress gridlocked, raiding the banks is the best option we've got to bring relief.

Facebook waves a flag for the hacking community

I hereby pledge never again to use the word hacker in an article without prefacing it either with "white-hat" or "black-hat".

The history of hackers, technological tinkerers who are the radio hams of the modern era, goes back to the model railway enthusiasts of MIT, and it is infuriating that "hacker" in the popular imagination is always a hooded beast intent on theft or chaos. In the hacker community, these are called black hats; the rest are white hats, out to innovate and improve gadgets and software.

Mark Zuckerberg, in the letter he wrote in Facebook's prospectus this week, makes an impassioned defence of "the hacker way", which he says infuses his company. "Every few months we have a hackathon, where everyone builds prototypes for new ideas they have," he said.

"Many of our most successful products came out of hackathons, including Timeline, chat, video, our mobile development framework and some of our most important infrastructure like the HipHop compiler." His letter really wasn't aimed at potential shareholders; he was appealing to a next generation of developers, saying: "Come work for us. Going public doesn't mean we're going all corporate."

But this is a letter that will be widely read, and maybe, just maybe, we can fix people's understanding of the hacker community. I promise to do my bit.