Foreclosure

Foreclosure is a specific legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan.

Formally, a mortgage lender (mortgagee), or other lien holder, obtains a termination of a mortgage borrower (mortgagor)'s equitable right of redemption, either by court order or by operation of law (after following a specific statutory procedure).

Usually a lender obtains a security interest from a borrower who mortgages or pledges an asset like a house to secure the loan. If the borrower defaults and the lender tries to repossess the property, courts of equity can grant the borrower the equitable right of redemption if the borrower repays the debt. While this equitable right exists, it is a cloud on title and the lender cannot be sure that (s)he can successfully repossess the property.

Therefore, through the process of foreclosure, the lender seeks to foreclose (in plain English, immediately terminate) the equitable right of redemption and take both legal and equitable title to the property in fee simple.

Other lien holders can also foreclose the owner's right of redemption for other debts, such as for overdue taxes, unpaid contractors' bills or overdue homeowners' association dues or assessments.

The foreclosure process as applied to residential mortgage loans is a bank or other secured creditor selling or repossessing a parcel of real property (immovable property) after the owner has failed to comply with an agreement between the lender and borrower called a "mortgage" or "deed of trust." Commonly, the violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property. When the process is complete, the lender can sell the property and keep the proceeds to pay off its mortgage and any legal costs, and it is typically said that "the lender has foreclosed its mortgage or lien." If the promissory note was made with a recourse clause then if the sale does not bring enough to pay the existing balance of principal and fees the mortgagee can file a claim for a deficiency judgment. In many states in the United States, items included to calculate the amount of a deficiency judgment include: the loan principal, accrued interest and attorney fees less the amount the lender bid at the foreclosure sale.

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Foreclosure Crisis Likely 5 More Years

Despite a decline in the total number of foreclosures across the U.S., the foreclosure crisis is likely to last another 5 years as it takes lenders that long to formally take back homes tied up in legal squabbles, according to a leading real estate research firm.

Lender Processing Services (LPS) found major differences in foreclosure pipelines in states with judicial and non-judicial foreclosures. Judicial foreclosures require courts to approve foreclosures before property can be formally repossessed by a lender.

“On average pipeline ratios – the rate at which states are currently working through their existing backlog of loans either in foreclosure or serious delinquency are almost twice as high in judicial states than non-judicial states,” said LPS analyst Herb Blecher. “At today’s rate of foreclosure sales, it will take 62 months to clear the inventory in judicial states as compared to 32 months in non-judicial states.

“A few judicial states – New York and New Jersey in particular – have such extreme backlogs that their problem-loan pipelines would take decades to clear if nothing were to change.”

CoreLogic counted 767,000 U.S. foreclosures in 2012. Formal foreclosures were down almost 30% than a year ago at the end of February, according to RealtyTrac, the lowest since 2007. Some 45,000 homes were foreclosed in February, less than half when the foreclosure crisis peaked in March 2010.

Financial incentives provided by the federal government to banks to cooperate with mortgage holders in short sales, growing employment levels, lower home prices and near record low mortgage rates are helping to push the housing recovery forward.

However, delays related to Congress approving a new mortgage financing system to replace or redesign Freddie Mac and Fannie Mae and more than 2-million homes that are in the shadow inventory but not yet formally repossessed trouble the housing market. Seven years after the housing market bubble bust, the foreclosure crisis, still stands as the largest block to a full-fledged economic recovery in housing.

Before the bust, formal foreclosures averaged 21,000 each month from 2000 to 2006. But since the financial crisis hit its peak in the summer of 2008, an estimated 4.3 million foreclosures have taken place across the nation, according to CoreLogic. Although the total number of foreclosures varies between real estate research firms tracking the totals, foreclosures are still the major problem hurting the housing market.

Five states account for almost half of all foreclosures in CoreLogic’s tabulation of foreclosures during 2012. The hardest hit states in the crisis include California, estimated to be more than 100,000 residential properties. Florida was second (98,000), followed by Michigan (74,000), Texas (57,000) and Georgia (49,000).

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Fiscal Cliff Deal To Significantly Damage U.S. Economy

The U.S. economy may have avoided falling off the fiscal cliff into a new recession, but it is still going to tumble down a rocky fiscal escarpment -- and that's not so good either.

House Majority Leader Eric Cantor, R-Va., left, and Speaker of the House John Boehner, R-Ohio, on Tuesday, before the House passed a fiscal cliff deal that will avert a recession but still hurt the economy.

The deal struck between the White House and Republicans to avoid the so-called "fiscal cliff" of tax increases and spending cuts is still going to hurt economic growth, economists said on Wednesday. The only question is how much.

The fiscal cliff deal delays or prevents some of the worst consequences of the cliff from taking place, but not all of them. The hit to growth will be something on the order of 1.3 to 1.75 percent, according to a handful of early estimates. That's meaningful for an economy widely expected to muddle along at 2.3 percent gross domestic product growth next year, according to the latest survey of economists by the Wall Street Journal.

By way of comparison, the Congressional Budget Office, Federal Reserve Chairman Ben Bernanke and other economists had warned that going full Thelma-and-Louise over the fiscal cliff would have triggered a new recession in the early months of 2013. Not everybody agreed, but many economists estimated that the full cliff could cut economic growth by between 2 percent and 4 percent this year.

The deal to avoid the cliff is so unhelpful as to be effectively useless, according to University of California-Berkeley economics professor Brad DeLong. His "back-of-the-envelope" estimate is that the deal shaves 1.75 percent from gross domestic product. According to DeLong, the best deal would have not only avoided any hit to the economy, but also added 1 percent to short-term economic growth. This deal "is only 40% of the way back from the 'austerity bomb' to where we want to be," he wrote on Tuesday.

"That isn't enough to make it worthwhile to make a deal before the new congress," he wrote. Too late!

One of the biggest immediate hits to the economy is the expiration of the payroll tax cut, which for some reason nobody was interested in extending for another year. That alone could trim 0.5 percent from GDP, according to Pantheon Macroeconomic Advisors chief economist Ian Shepherdson -- and that doesn't include any "multiplier" effects from weaker consumer spending. Goldman Sachs economist Jan Hatzius sees the payroll-tax cut shaving 0.6 percent from GDP.

Moody's chief economist Mark Zandi said in an emailed statement that he thinks all of the tax increases taking effect this week, including the payroll-tax increase, will cut 0.75 percent from GDP growth and lead to 600,000 fewer jobs being created this year.

All told, Pantheon economist Shepherdson sees the fiscal cliff deal hurting GDP by 1.5 percent, he told clients in a note on Wednesday.

"That’s still far too much for such a fragile economy but it will not push the U.S. back into recession," he wrote.

Most of the effects should pass by the middle of the year, Shepherdson believes -- assuming there is yet another deal on the debt ceiling, the expiring federal budget and delayed fiscal cliff spending cuts, all of which are supposed to hit by late February or early March. No deal on those, and we could be looking at another financial crisis. (No pressure.)

Cullen Roche, founder of Orcam Financial Group, a financial services firm, wrote on his blog, Pragmatic Capitalism, that he thinks the deal will hit GDP by 1.3 percent. His estimate includes Goldman's payroll tax hit and some of the "multiplier" effects cited by the CBO.

Roche also reminds us that, while consumers and businesses have been spending cautiously since the Great Recession, the federal government has been making up for some of the demand by running high deficits. Contrary to what you might hear on C-SPAN or CNBC, this is a good thing. And that deficit will be ever so slightly smaller this year, offering less support for the economy.

"The bottom line: this could have been much worse," Roche wrote. "Unfortunately, it’s not completely over."

Update: Like he does, Phil Izzo at the WSJ's Real Time Economics blog has a fairly comprehensive roundup of economists' reactions. There seems to be a consensus building around a 1.5 percent hit to GDP from this deal.

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Inflation: How Is It Measured?

Measuring inflation is a difficult problem for government statisticians. To do this, a number of goods that are representative of the economy are put together into what is referred to as a "market basket." The cost of this basket is then compared over time. This results in a price index, which is the cost of the market basket today as a percentage of the cost of that identical basket in the starting year.

In North America, there are two main price indexes that measure inflation:

• Consumer Price Index (CPI) - A measure of price changes in consumer goods and services such as gasoline, food, clothing and automobiles. The CPI measures price change from the perspective of the purchaser. U.S. CPI data can be found at the Bureau of Labor Statistics.

• Producer Price Indexes (PPI) - A family of indexes that measure the average change over time in selling prices by domestic producers of goods and services. PPIs measure price change from the perspective of the seller. U.S. PPI data can be found at the Bureau of Labor Statistics.

You can think of price indexes as large surveys. Each month, the U.S. Bureau of Labor Statistics contacts thousands of retail stores, service establishments, rental units and doctors' offices to obtain price information on thousands of items used to track and measure price changes in the CPI. They record the prices of about 80,000 items each month, which represent a scientifically selected sample of the prices paid by consumers for the goods and services purchased.

In the long run, the various PPIs and the CPI show a similar rate of inflation. This is not the case in the short run, as PPIs often increase before the CPI. In general, investors follow the CPI more than the PPIs.

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Social Security (United States)

Social Security Poster: old man (Photo credit: Wikipedia)

In the United States, Social Security refers to the Old-Age, Survivors, and Disability Insurance (OASDI) federal program. The original Social Security Act (1935) and the current version of the Act, as amended[3] encompass several social welfare and social insurance programs.

Social Security is primarily funded through dedicated payroll taxes called Federal Insurance Contributions Act tax (FICA). Tax deposits are formally entrusted to the Federal Old-Age and Survivors Insurance Trust Fund, the Federal Disability Insurance Trust Fund, the Federal Hospital Insurance Trust Fund, or the Federal Supplementary Medical Insurance Trust Fund which comprise the Social Security Trust Fund.

By dollars paid, the U.S. Social Security program is the largest government program in the world and the single greatest expenditure in the federal budget, with 20.8% for Social Security, compared to 20.5% for discretionary defense and 20.1% for Medicare/Medicaid. According to economist Martin Feldstein, the combined spending for all social insurance programs in 2003 constituted 37% of government expenditure and 7% of the gross domestic product. Social Security is currently estimated to keep roughly 40 percent of all Americans age 65 or older out of poverty.

The Social Security Administration is headquartered in Woodlawn, Maryland, just to the west of Baltimore.

Proposals to partially privatize Social Security became part of the Social Security debate during the Bill Clinton and George W. Bush presidencies.

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It's official: U.S. hits debt ceiling

It's official: U.S. debt reached its legal borrowing limit Monday, giving Congress about two months before it must raise the debt ceiling or risk causing the government to default on its bills and financial obligations.

Congress has about two months before it must raise the debt ceiling or risk causing the government to default on its bills and financial obligations.

"I can confirm we will reach the statutory debt limit today, Dec. 31," a Treasury Department official said Monday.

A bipartisan fiscal cliff deal passed by the Senate early Tuesday and awaiting a vote in the House did not address the debt ceiling issue.

As expected, Treasury Secretary Tim Geithner had submitted a letter to Congress on Monday saying he had begun a "debt issuance suspension period" that would last through Feb. 28. That means Treasury will employ a series of "extraordinary measures" so it does not exceed the debt limit, currently set at $16.394 trillion.

Such measures include suspending the reinvestment of federal workers' retirement account contributions in short-term government bonds.

By taking those steps, Treasury can buy about $200 billion of headroom. That normally can cover about two months' worth of borrowing, although continuing uncertainty about tax rates and spending make it hard to determine precisely how long the extraordinary measures will last.

The bottom line: Congress will have to raise the debt ceiling soon -- as soon as late February.

And that sets the stage for yet another fight on Capitol Hill, where some Republican lawmakers view the debt limit as leverage in negotiations with President Obama over spending cuts and reforms to Medicare and Social Security.

Last year, political brinksmanship over the debt limit led to the downgrade of the country's credit rating, roiled stock markets and raised questions about the country's willingness to pay all of its bills on time.

A report in July by the Government Accountability Office said the 2011 debt ceiling fight wasted $1.3 billion in taxpayer money because of the uncertainty it wrought on the complex task of federal borrowing.

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First-time buyer

A first-time buyer (FTB) is a term used in the British and Irish property markets, and in other countries, for a potential house buyer who has not previously owned a property.

A first-time buyer is usually desirable to a seller as they do not have to sell a property, and as such will not involve a housing chain.

There are many factors a first-time buyer may need to consider before purchasing their first property; how much initial cash they will need for stamp duty and any solicitors fees, and if they need to arrange a mortgage how much are they able to afford.

In the United Kingdom and Ireland, home ownership is seen as a natural step in the life cycle and the natural form of property tenure. Ireland has one of the highest proportions of owner-occupiers in the EU at around 80%.

In the UK in the 1980s almost half of all mortgages were taken out by first-time buyers, but this has now declined to only about 15%. In Ireland, FTB's represent 34% of the market.

In recent years the number of new buyers purchasing property has declined, with FTBs being "priced out of the market" by ever increasing house prices.

In the 2007 Scottish parliamentary election the Scottish National Party proposed a £2,000 grant for first-time buyers to help them get onto the property ladder.

Grants have not been forthcoming in the rest of the UK, but in July 2007 Housing Minister Yvette Cooper announced it would be broadening the government's Homebuy Shared Equity scheme to help buyers. "Unless we act now by 2026 first-time buyers will find average house prices are ten times their salary. That could lead to real social inequality and injustice," Cooper told Parliament.

Since then however, first time buyers have regained some momentum in the market, with reports in 2010 citing first-time buying as the most popular of consumer enquiries for a local, whole of market mortgage adviser - accounting for 37% of total enquiries.

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First time buying a home? Avoid these 4 pitfalls

Buying a home and taking out a mortgage is a complex process with major financial and emotional consequences.

All buyers are subject to certain critical mortgage mistakes, including the five biggest ones we recently highlighted.

But there are particular pitfalls you should maneuver around if this is your first time buying a home.

Avoid these mistakes, and you'll save yourself some heartache, if not time and money, too.

Mistake 1. Succumbing to false pressure.

First-time home buyers often set arbitrary deadlines for buying a home, like "before the wedding," "before the baby is born" and "before our lease expires."

But the excitement of meeting your goal will wear off quickly. Then you’ll be left with the day-to-day reality of living in a house that isn’t quite right because you rushed into your purchase.

Getting out of a lease early is less expensive than buying the wrong house. And trying to buy a home while pregnant or planning a wedding adds unneeded challenges to an already stressful time.

Mistake 2. Settling for a home that’s not right for you.

Besides arbitrary deadlines, there are other reasons why first-time buyers may settle for a home that isn’t right for them.

The desire to buy a home is so great, and the fear of failure is so high, that buyers will often buy a house that works instead of one that is truly right for them, says mortgage broker Todd Huettner of Huettner Capital in Denver, Colo.

"The results can be costly," he says.

You might think you’ve found the best option in your price range because everything you’ve seen so far is junk. Or you might feel rushed by the fear the real estate or mortgage markets will suddenly change and price you out.

If you can’t shake your impatience, there is a way to minimize the potential damage.

"The key is not to buy a house with a fatal flaw," says Michael F. Levy, principal broker of Grand Lux Realty in Armonk, N.Y.

Avoid any home that is next to a highway or railroad tracks, has road noise or is on a double yellow line street, is in a bad school district, or doesn’t have a flat, usable backyard, he says.

"If the house doesn’t have a fatal flaw, and the buyer hasn’t overpaid for it, they should be able to sell it again and find something better," he says.

Mistake 3. Being afraid to back out.

After investing countless hours shopping, then paying for a home inspection and putting down earnest money, first-time buyers may be afraid to walk away when they finally have a home under contract.

"People will overlook big problems if they think it is the only house for them," Huettner says.

Whether you don’t like something in the home inspection report, or you’re second-guessing how much you can afford to pay, if you have doubts, step back and reevaluate your purchase, says Erica Ramus, broker/owner of Ramus Realty Group in Schuylkill County, Pa.

"Backing out and losing your deposit — for any reason — can be cheaper and less traumatic in the end than buying the wrong house or buying a house that is wrong for any reason at all," she says.

If you see something on the inspection report that causes alarm, contact an expert to get the full scope of any problems, says Mike Canning, vice president of Delaware-based XONEX Relocation. A pro can help you decide which home inspection problems mean it’s time to walk away and which are minor fixes.

Mistake 4. Trying to time the market.

It’s natural to question when it's the best time to buy after so many people have been seriously burned by the housing market over the last decade.

But with home prices still depressed and mortgage rates as low as they've ever been, waiting longer now makes little sense for most buyers.

"Unless you are an investor looking to quickly flip a home for profit, your timing should only be dependent on your own circumstances," Canning says. "If home value is dropping when you purchase, then you are getting a bargain from where it was. If the market is improving, you are getting it today at a bargain as compared to tomorrow."

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Reid Hopeful Negotiators to Reach Last-Minute Budget Deal

Senate Majority Leader Harry Reid said negotiators could reach a U.S. budget deal today that would protect all but top earners from a tax increase at midnight.

With taxes set to increase for almost every U.S. worker at midnight, there is still no agreement and gaps between the two parties remain. Photographer: J. Scott Applewhite/AP Photo

“They’re progressing,” Reid, a Nevada Democrat, said of the talks in an interview as he entered the Capitol this morning. Asked if he thought a deal could be reached today, Reid said, “I really hope so. We’re not there yet, though.”

There is still no agreement and gaps between the two parties remain. Republicans and Democrats were narrowing the annual income level at which tax rates would increase in 2013 to between $400,000 and $500,000.

Progress picked up after a weekend of private talks and public sniping as lawmakers sought to avert more than $600 billion in tax increases and spending cuts that make up the so- called fiscal cliff. Even if a deal is reached and can get through both chambers of Congress, it would be more limited than President Barack Obama and leaders of both parties sought. It would set up another battle early in 2013 over the budget and the federal debt limit.

Senate Minority Leader Mitch McConnell said he and Vice President Joe Biden spoke at 12:45 a.m. and 6:30 a.m. today. As he arrived at his office, McConnell, a Kentucky Republican, gave reporters no indication of whether there was movement toward a deal.

Income Tax Rates

Talks between Reid and McConnell stalled yesterday because of disputes over income tax rates, the estate tax and other issues. McConnell reached out to Biden in an effort to break the impasse, while staffers worked into the night trading and reviewing offers.

Representative Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee, told Bloomberg Television today that the odds of reaching a deal are “a little better than 50-50” while noting that “a lot has to go right.”

The Senate reconvenes today at 11 a.m. Washington time. Reid said yesterday on the Senate floor that there would “perhaps” be further announcements then. “I certainly hope so,” he said.

The Standard & Poor’s 500 Index fell 0.3 percent to 1,398.34 at 9:32 a.m. in New York. The benchmark 10-year Treasury bond yield increased two basis points, or 0.02 percentage point, to 1.72 percent at 9:35 a.m. in New York, according to Bloomberg Bond Trader prices.

Bush Tax Cuts

Tax cuts first enacted during George W. Bush’s presidency are scheduled to expire tonight. Obama and other Democrats have sought to extend the reductions for married couples’ income up to $250,000 a year while letting tax rates rise for income above that amount. Republicans oppose tax rate increases for any income level.

“The sticking point appears to be a willingness or interest or frankly, the courage to close the deal,” McConnell said on the Senate floor yesterday. “I’m willing to get this done, but I need a dance partner.”

Illinois Senator Dick Durbin, the second-ranking Democrat, said unresolved issues include the income threshold at which tax rates would rise, expiring estate tax levels and how to prevent an expansion of the alternative-minimum tax. Democrats, who represent many of the high-tax states where the AMT has the biggest bite, want to permanently limit its reach.

Capital Gains

There is a direct relationship between the income level at which higher taxes will begin and the estate tax, said a Senate aide familiar with the negotiations.

The higher the threshold for an income tax increase, the more Democrats want Republicans to relent on estate taxes, the aide said. Republicans want to keep estate taxes at current levels, with a $5.12 million per-person exemption and 35 percent top rate; some Democrats agree with this. Obama wants a $3.5 million exemption and 45 percent top rate.

Durbin also said there is a debate over raising the rate for capital gains and dividends from 15 percent to 20 percent. The issue is at what income level the rate would jump to the higher percentage, he said.

According to a person familiar with the talks who asked for anonymity when discussing them, Democrats are pushing for an income level as low as $250,000 as a trigger for a 20 percent tax rate on capital gains and dividends. Taxpayers with income levels below $250,000 would still pay a capital gains and dividend tax rate of 15 percent, the person said.

Capital Gains

Without a deal, the capital gains tax rate for top earners is scheduled to rise 20 percent and dividends would be taxed as ordinary income. With or without a deal, top earners will pay an additional a 3.8 percent tax on capital gains and dividends under the 2010 health-care law.

Lawmakers haven’t said whether any deal would include provisions to halt a cut in Medicare payments to doctors.

Durbin told reporters yesterday that Republicans had offered to let tax cuts expire on household income over $500,000. Democrats countered with a $450,000 threshold.

“People are coming around to about a $500,000 threshold,” Senator Kay Bailey Hutchison, a Texas Republican, told reporters.

House Speaker John Boehner, an Ohio Republican, brought his members back to Washington yesterday, though he has said the House won’t act unless the Senate sends over a proposal.

“We’re waiting to see if the Senate does anything,” said Representative Buck McKeon, a California Republican.

Recession in 2013

Allowing the fiscal changes to take effect would cause a recession in the first half of 2013, according to the Congressional Budget Office.

During an interview broadcast yesterday on NBC’s “Meet the Press,” Obama made a last-minute appeal for compromise and warned of “an adverse reaction in the markets” if Congress doesn’t act.

Republicans “say that their biggest priority is making sure that we deal with the deficit in a serious way, but the way they’re behaving is that their only priority is making sure that tax breaks for the wealthiest Americans are protected,” Obama said. He said his offers to Republicans have been “so fair that a lot of Democrats get mad at me.”

In a statement, Boehner called Obama’s comments “ironic, as a recurring theme of our negotiations was his unwillingness to agree to anything that would require him to stand up to his own party.”

Expressing Frustration

The Reid-McConnell talks broke down publicly yesterday with both leaders coming to the floor to express frustration at the lack of progress.

Reid attributed the setback to a Republican insistence on using a new inflation measure that would lead to smaller Social Security cost-of-living increases. Republicans later said they had stopped advocating the formula change.

“It’s not a winning argument to say benefits for seniors versus tax breaks for rich people,” Senator John McCain of Arizona told reporters.

Several Senate Republicans leaving yesterday’s caucus meeting said McConnell told them the talks stalled because Obama insists on using revenue generated from higher tax rates on the wealthy to reduce the spending cuts scheduled to begin in January.

Senator Bob Corker, a Tennessee Republican, said new revenue should go instead to deficit reduction. Democrats “want to spend it all now,” he said.

New Revenue

Democrats have said for more than a year that new revenue should be used to turn off the spending cuts. That was the basis of their proposals in last year’s failed talks by a deficit- reduction supercommittee.

Boehner may be hesitant to work with Democrats to advance a measure that raises taxes just days before he has to stand for re-election as speaker in the next Congress.

In the event the Senate can’t reach a compromise, Obama has asked Reid to ready a bare-bones bill for a vote today to extend expanded unemployment benefits and tax cuts on family income up to $250,000.

In that scenario, Obama said on NBC, “Republicans will have to decide if they’re going to block it, which will mean that middle-class taxes do go up.” Any compromise needs to be passed by the Republican-controlled House.

Defense Layoffs

South Carolina Senator Lindsey Graham, a Republican, said he had discussed the effect of spending cuts on the U.S. military with Defense Secretary Leon Panetta and was told that it would mean 800,000 layoff notices at the beginning of the year. The result would be destroying “the finest military in the world at the time we need it the most,” Graham said.

If Congress does nothing, taxes will rise in 2013 by an average of $3,446 for U.S. households, according to the nonpartisan Tax Policy Center in Washington.

Tax filing for as many as two-thirds of U.S. taxpayers could be delayed into at least late March. Defense spending would be cut, and the economy would probably enter a recession in the first half of 2013, according to the Congressional Budget Office.

The effects of the higher tax rates and federal spending cuts would accumulate over a matter of months. Congress could reverse them by acting retroactively in 2013.

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European Central Bank

German Logo of the ECB. (Photo credit: Wikipedia)

The European Central Bank (ECB) is the sixth of the seven institutions of the European Union (EU) as listed in the Treaty on European Union (TEU). It is the central bank for the euro and administers the monetary policy of the 17 EU member states which constitute the Eurozone, one of the largest currency areas in the world. It is thus one of the world's most important central banks.

The capital stock of the bank is owned by the central banks of all 27 EU member states. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt, Germany. The current President of the ECB is Mario Draghi, former governor of the Bank of Italy.

The primary objective of the European Central Bank is to maintain price stability within the Eurozone, which is the same as keeping inflation low and preventing deflation. The Governing Council aims to keep inflation (as measured by the Harmonised Index of Consumer Prices) below, but close to, 2% over the medium term. Unlike other central banks, for instance, the Federal Reserve System, the ECB has a single primary objective, with other objectives subordinated to it.

The basic tasks of the ECB are to define and implement the monetary policy of for the Eurozone, to conduct foreign exchange operations, to take care of the foreign reserves of the European System of Central Banks and to promote smooth operation of the financial market infrastructure under the TARGET2 payments system and the technical platform (currently being developed) for settlement of securities in Europe (TARGET2 Securities).

Furthermore, it has the exclusive right to authorise the issuance of euro banknotes. Member states could issue euro coins, but the amount must be authorised by the ECB beforehand (upon the introduction of the euro, the ECB also had exclusive right to issue coins).

On 9 May 2010, the 27 member states of the European Union agreed to incorporate the European Financial Stability Facility. The EFSF’s mandate is to safeguard financial stability in Europe by providing financial assistance to Eurozone Member States.

The bank must also co-operate within the EU and internationally with third bodies and entities. Finally it contributes to maintaining a stable financial system and monitoring the banking sector. The latter can be seen, for example, in the bank's intervention during the 2007 credit crisis when it lent billions of euros to banks to stabilise the financial system.

Although the ECB is governed by European law directly and thus not by corporate law applying to private law companies, its set-up resembles that of a corporation in the sense that the ECB has shareholders and stock capital. Its capital is five billion euro which is held by the national central banks of the member states as shareholders. The initial capital allocation key was determined in 1998 on the basis of the states' population and GDP, but the key is adjustable. Shares in the ECB are not transferable and cannot be used as collateral.

The bank is based in Frankfurt, the largest financial centre in the Eurozone (although not the largest in the European Union). Its location in the city is fixed by the Amsterdam Treaty along with other major institutions. In the city, the bank currently occupies Frankfurt's Eurotower until its purpose-built headquarters are built.

The owners and shareholders of the European Central Bank are the central banks of the 27 member states of the EU. The ECB should not be confused with the European Investment Bank (EIB), the development bank owned by the EU member states.

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