Economy Archives

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April 15, 2008

From 2000: EXPANDING ECONOMIC OPPORTUNITY FOR ALL Unemployment Down to 4.1%: The unemployment rate in Pennsylvania has declined from 7.3% to 4.1% since 1993. 503,600 New Jobs: 503,600 new jobs have been created in Pennsylvania since 1993 — an average of 71,096 jobs per year. In contrast, an average of 500 jobs were lost each year under the previous administration. 486,300 New Private Sector Jobs: Since 1993, 486,300 new private sector jobs have been created—an average of 68,654 jobs per year, compared to an average loss of 2,325 private sector jobs per year in the previous administration. 43,600 New Construction Jobs: 43,600 construction jobs have been created in Pennsylvania since 1993 — an average of 6,155 jobs per year. In contrast, an average of 8,775 construction jobs were lost each year during the previous administration. Poverty Has Fallen: Nationally, the poverty rate has fallen from 15.1% in 1993 to 12.7%...

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April 08, 2008

Let's see, run up a lot of bills and buy more house than you can afford, and other people who lived within their means and saved money, who are living in an apartment and earning a piddly rate on their savings, will pay to lower your interest rate and pay down your principal. What's wrong with this picture? From My Budget 360: One of the unintended consequences of this housing market is the punishment conservative savers are taking. Last month we had the rather astonishing release of data from the Bureau of Labor and Statistics telling us for the month, that inflation was at 0 percent. As disconnected as this is from reality, there is a reason the Federal Reserve is chopping rates even further and it is the opposite of what they are telling you. Behind closed doors, they are hoping that you go out and spend and go...

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March 25, 2008

In a field one summer's day a Grasshopper was hopping about, chirping and singing to its heart's content. An Ant passed by, bearing along with great toil an ear of corn he was taking to the nest. "Why not come and chat with me," said the Grasshopper, "instead of toiling and moiling in that way?" "I am helping to lay up food for the winter," said the Ant, "and recommend you to do the same." "Why bother about winter?" said the Grasshopper; we have got plenty of food at present." But the Ant went on its way and continued its toil. When the winter came the Grasshopper found itself dying of hunger, while it saw the ants distributing, every day, corn and grain from the stores they had collected in the summer. Then the Grasshopper knew... It is best to prepare for the days of necessity. I know too many...

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March 15, 2008

From Money: Inflation isn't the only worry on the minds of Fed critics. Dean Baker, co-director of the Center for Economic and Policy Research in Washington, says the Term Securities Lending Facility and moves like it amount to a government bailout of corporate executives who made reckless bets - and who should be made to pay the tab with their jobs. The government is showing considerable ingenuity in devising new tactics to fight the credit crunch. But some observers fear that the innovations risk making matters worse - by fueling inflation and insulating executives who made reckless bets from the full wrath of the market. The Federal Reserve set off a ferocious stock market rally Tuesday with its plan to lend banks as much as $200 billion over 28 days later this month. The plan sent shares of hard-hit lenders such as Fannie Mae (FNM), Freddie Mac (FRE, Fortune 500)...

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February 11, 2008

From The Baglady: Considering the fact that the average price of shacks in my neighborhood is $700k to $800k, most of these buyers are trying to secure jumbo loans. Once this package goes through, financing will be possible, and the prices on the shacks will not come down as quickly. Even though this higher limit is only in effect for one year, it is possible that more speculators and fraudsters will get into the market and drive prices up even higher. After all, it only took about two years (2004 to 2006) for home prices to double in many parts of California. You may say that this is not a problem for the rest of America, but if Freddie Mac and Fannie Mae become insolvent because of more risky debt, then all Americans will have to pay dearly with mandatory bailouts. Then we can kiss that tax rebate and even...

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February 09, 2008

From John Dean: ... Harvard Kennedy School Professor Jeffrey Frankel, an MIT-trained economist, has examined and documented the ironic but now conspicuous change in the economic philosophies of presidents of the contemporary Democratic and Republican Parties. Comparing the records of Presidents Carter and Clinton with that of Reagan, Bush I, and Bush II provides the evidence at which voters should look in 2008. Professor Frankel's fascinating study points out that the turnaround extends far beyond the Republican presidents creating deficits and Democrats creating surpluses, or in Carter's case, holding down the deficit. He notes that while Republicans claim to be inflation fighters, "in practice, Presidents Reagan and the first Bush pressured the Fed to ease up on monetary policy - sufficiently so that Paul Volcker decided the chairmanship was no longer worth having in 1987" and threatened to leave. In comparison, President Clinton "deliberately and unprecedentedly" allowed Alan Greenspan do...

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December 28, 2007

YouTube...

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December 14, 2007

From Froma Harrop in the Nashua Telegraph: For the greater part of this decade, the Bush administration and the Republican-controlled Congress have looked the other way at crazy, greedy and reckless behavior. The game was to maintain the housing bubble. Inflated home prices gave wage-stagnant Americans a false sense of prosperity, setting off a binge of borrowing and spending.The people losing their houses share culpability. Some were too lazy to read their contracts. Some squandered their homes' equity to finance shopping sprees. Many were not poor and went into enormous debt to buy real estate they couldn't afford. Do Democrats want to be seen bailing out the McMansion crowd?Politicians should recognize that falling real-estate values are not entirely a bad thing. They make housing more affordable for buyers. Preserving an inflated market through a big public bailout would be unfair to taxpayers. Fiscal rectitude means regulating markets and punishing evildoers,...

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From David Leonhardt in the New York Times: "We’re going through that transition where sellers can’t accept that prices are falling. They’re still caught up in this idea that their property is worth more than it is. It’s just strange.” The slump can’t end until home prices come back in line with economic reality.The Democratic plan is clearly more humane than Bush’s, but it would also end up subsidizing some wildly irrational home purchases and borrowing choices. Either way, the real estate bust will not be over until prices have fallen significantly more than they have so far. Just south of Los Angeles, there is a small city called Paramount where houses have all but stopped selling. It’s a city of bungalows and manicured lawns, far enough from downtown to have long been affordable to working-class families. But as home prices rose ever higher in other parts of Southern California,...

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December 11, 2007

In a field one summer's day a Grasshopper was hopping about, chirping and singing to its heart's content. An Ant passed by, bearing along with great toil an ear of corn he was taking to the nest. "Why not come and chat with me," said the Grasshopper, "instead of toiling and moiling in that way?" "I am helping to lay up food for the winter," said the Ant, "and recommend you to do the same." "Why bother about winter?" said the Grasshopper; we have got plenty of food at present." But the Ant went on its way and continued its toil. When the winter came the Grasshopper found itself dying of hunger, while it saw the ants distributing, every day, corn and grain from the stores they had collected in the summer. Then the Grasshopper knew... It is best to prepare for the days of necessity. This "bail out", proposed...

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December 10, 2007

From Sean Olender in the San Francisco Chronicle: The "freeze" is just another fraud - and like the other bailout proposals, it has nothing to do with U.S. house prices, with "working families," keeping people in their homes or any of that nonsense. The next time that Paulson is before the Senate Finance Committee, instead of asking, "How much money do you think we should give your banking buddies?" I'd like to see New York Sen. Chuck Schumer ask him what he knew about this staggering fraud at the time he was chief of Goldman Sachs. What would be prudent and logical is for the banks that sold this toxic waste to buy it back and for a lot of people to go to prison. If they knew about the fraud, they should have to buy the bonds back. The time to look into this is before the shredders have...

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From Dr. Housing Bubble: We are allowing the fox to guard the henhouse. This plan is flawed since it gives power to the corruptors that caused this mess to begin with. There is a source of irony that the same administration that is criticizing “socialized medicine” is socializing corporate losses. I’ve been digging deeper into the current Bush plan and if this doesn’t smack of political posturing with no meat, I really don’t know what does... ... Here’s a question for all of you armchair economists; if people stop paying or are unable to pay their mortgage, the note holder is still requesting payment, who ends up paying the 3 month moratorium? You need to remember that a primary reason this housing bubble expanded as it did was of the massive amount of easy financing being bought up by Wall Street. No one really cared about the underlying asset as...

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From Andy LaPerriere in the Wall Street Journal: A bailout package would almost certainly reward the least deserving. Those facing the greatest risk of foreclosure -- and presumably those who would get most of the taxpayer aid -- are those who bought a much more expensive house than they could afford, spent the equity of their once-affordable home, or lied about their income to qualify for a loan they otherwise would not have received.Would there be an asset test, or would people with two brand new cars in the driveway or six-figure stock portfolios qualify? A taxpayer bailout of distressed homeowners would be expensive, unfair to the vast majority of homeowners and renters who have made prudent financial decisions, and set a troubling precedent that would invite reckless behavior in the future. As the housing market continues to deteriorate, the pressure to respond is growing in Washington. A Treasury Department...

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November 15, 2007

From ABC News: Buffett says he pays 18 percent of his salary to the IRS while the rest of his staff pays nearly twice that - 33 percent. "Frankly, an economy where my receptionist pays a lot higher tax rate than, than I do does not strike me as a just economy," he told lawmakers."The richest families in our country pay a lower tax rate than the people who take care of their children, or who teach in their schools, or who would put out a fire if their house were to start to burn," Gene Sperling, from the Center for American Progress, said. It's been said there are only two certainties in life: death and taxes. Now one of those certainties is under attack from an unlikely source: Warren Buffett. Wednesday, the billionaire founder of the investment firm Berkshire Hathaway Inc. went to Washington to ask Congress not to...

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October 22, 2007

From Alan Abelson at Barrons: Carpers and cynics who never met a payroll and, indeed, likely never did an honest day's work (you know the types as well as we do: politicians, journalists, that sort of lowlife) may snarl all they like about crony capitalism and worse. But decent, compassionate folk can only cheer the speed with which Mr. Paulson whistled up a $100 billion bail-out for a posse of banks that found themselves stuck on a sandbar when the sea of liquidity they have been so happily splashing about in suddenly went bone dry. In times of dire need, it's always there, ready, able and willing to bail you out. We are not talking about giving handouts to undeserving wretches who are starving, out of a job and sleeping on the grates because they lack moral fiber. No, we're talking about rallying to the aid of the best and...

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October 21, 2007

John Burns His Top 25 - Significantly Overpriced in Comparison to History: Los Angeles, Portland, Monterey, Bethesda, San Jose, Seattle, San Francisco, Tacoma, Orange County, Santa Cruz, Baltimore, Napa, Washington D.C., San Luis Obispo, Oakland, Riverside-San Bernardino, Olympia, Miami, Bend, Allentown, Ventura, Vero Beach, San Diego, Milwaukee, Dover...

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So the people who were responsible and are renting because they couldn't afford the insane housing prices are supposed to pay to bail out the greedy fools, the banks and McMansion "owners", who are responsible for the mess? From Ceri Shepherd at Financial Sense: The Borrowers SHOULD LOSE THEIR HOUSES and the banks should LOSE MONEY - that’s the discipline; any bailout simply provides MORAL HAZARD. The biggest speculators of all were Wall Street including Goldman Sachs your old firm Mr Paulson, nobody said anything when the big fat fees were rolling in... By definition if you are going to help the "homeowners", many of whom were acting like speculators, you are also by default helping the lenders - THE REAL MOTIVATION. ...Anybody taking a mortgage should look at the affordability of the payments and not what the house is worth or is going to be worth, otherwise they are...

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From Seth Jayson at Motley Fool: Answer us this, Mr. Paulson. How do you propose to encourage liquid lending markets while simultaneously relieving overstretched homebuyers of their contractual obligations to the (regrettably) lousy ARMs they took out in order to buy those overpriced McMansions?Someone's gotta pay. And if it's not going to be the debtors leaving the homes, and if it's not going to be Hank's buddies on Wall Street, who does that leave?Us. The responsible majority of Americans. Remember us? The people who didn't go out and do stupid things with our money? I'm shocked. SHOCKED What else do you expect from a former Goldman Sachs (NYSE: GS) honcho who's presiding over an epic housing crash? Tough love? Free market economics? Please. It's all about keeping people happy, no matter what the cost. Today, at Georgetown's law school, Treasury Secretary Hank Paulson made that plain. He followed up on...

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October 19, 2007

From Joel On Software: Many of my friends, especially the ones whose talents were very significant but didn't show up on the traditional scales, tended to get lousy performance reviews. Negative reviews, obviously, have a devastating effect on morale. In fact, giving somebody a review that is positive, but not as positive as that person expected, also has a negative effect on morale."At least two dozen studies over the last three decades have conclusively shown that people who expect to receive a reward for completing a task or for doing that task successfully simply do not perform as well as those who expect no reward at all." ...At two of the companies I've worked for, the most stressful time of year was the twice-yearly performance review period. For some reason, the Juno HR department and the Microsoft HR department must have copied their performance review system out of the same...

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October 03, 2007

From the Baltimore Sun: "I think when it's all said and done, the measured home price will have declined by about 10 percent," he said. "But the effective price after the discounts will be closer to 15 percent." Samantha Stoney bought her house in Canton for a lot less than the sellers had originally hoped to get, but the good deal didn't end with the $243,000 price. They covered most of her closing costs, too - a $10,000 incentive. In effect, the sellers received $233,000. But that's not what got recorded in the home sales statistics. Amid a deepening housing slump, givebacks have become increasingly common, even expected as a matter of course here and nationwide, economists and real estate agents say. And because they're unmeasured, they mask an erosion in housing prices. These discounts are so widespread that some economists think that prices in the Baltimore area - up...

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From Paul Krugman of the New York Times: OK, this is a small bone to pick, but worth mentioning. Reading various stories on the latest grim housing news, I notice that almost all of them talk about the decline in sales over the past year – which is, to be sure, pretty grim. For example, August 2007 new home sales were off 21% from a year earlier. But the reality is even grimmer, since the housing bust was already well underway in 2006. And you don’t have to do a lot of digging to make the right comparison. The same Census release (warning, pdf) that gives you that 21% figure also reports average sales data from 2005, back when Alan Greenspan was assuring us that there was no housing bubble, just a bit of local “froth”. And comparing the seasonally adjusted August 2007 numbers with the average rate of sales...

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September 17, 2007

From Dean Baker in The Nation: The housing market is in its worst downturn since the Great Depression--and it's taking the rest of the economy down with it. Most forecasters insist there won't be a recession, although the August job losses forced even optimists to acknowledge that the meltdown is causing serious economic problems. (When it comes to recessions, the professionals seem to be the last to find out: On the eve of the last downturn, in the fall of 2000, all the Blue Chip 50 forecasters predicted solid growth for the following year.) The downturn should not have been a surprise. House prices rose at an unprecedented rate over the past dozen years. For a hundred years, from 1895 to 1995, house prices nationwide increased at the same pace as the overall inflation rate. Since 1995 inflation-adjusted house prices have risen by more than 70 percent. It should have...

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September 14, 2007

Seen on the internet: "You're the idiot that somehow bought a house for four times its value because of the speculative inflated market with a wacky loan scheme. Now you can't afford the payments. Too damn bad. I should not have to bail you out. Stop whining!" True, but he misses the other side of the equation, the ones who made it all possible - they made off like bandits. Bailing out the greedy, stupid buyers means bailing out them, too....

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August 17, 2007

From Dean Baker in The Nation: ...The housing enthusiasts, led by Alan Greenspan, insist that the run-up is not a bubble, but rather reflects fundamental factors in the demand for housing. They cite several factors that could explain the price surge: a limited supply of urban land, immigration increasing the demand for housing, environmental restrictions on building, and rising family income leading to increased demand for housing. A quick examination shows that none of these explanations holds water. Land is always in limited supply; that fact never led to such a widespread run-up in home prices in the past. Immigration didn't just begin in the late nineties. Also, most recent immigrants are low-wage workers. They are not in the market for the $500,000 homes that middle-class families now occupy in bubble-inflated markets. Furthermore, the demographic impact of recent immigration rates pales compared to the impact of baby boomers first forming...

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August 03, 2007

From Bloomberg: The U.S. subprime-market rout that wiped out $2.1 trillion from global share values last week has ``got a long way to go,'' said Jim Rogers, a New York-based fund manager who predicted the start of the commodities rally in 1999. This week's rebound in equity markets hasn't persuaded Rogers, 64, to pull out of bets that U.S. investment banks and homebuilders are heading for further declines. ``This was one of the biggest bubbles we've ever had in credit,'' Rogers, chairman of Beeland Interests Inc., said in an interview from Hong Kong. ``I have been and am still short the investment bankers in America. I'm also short homebuilders.'' The Morgan Stanley Capital International World Index plunged 5.3 percent last week, its worst weekly drop in five years, on concern defaults among subprime mortgages may be spilling over to other credit markets and hurting earnings and takeovers. Further losses may...

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July 28, 2007

From MSNBC: Wall Street extended its steep decline Friday, propelling the Dow Jones industrials down more than 500 points over two days after investors gave in to mounting concerns that borrowing costs would climb for both companies and homeowners. It was the Dow’s worst week in nearly five years. Investors cast aside a stronger-than-expected read on the economy and maintained negative sentiment that dominated Thursday when the market shuddered amid worries over the U.S. mortgage and corporate lending markets. Investors globally took flight from equities, shifting cash into safer investments in Treasurys. Although the market has often rebounded after a steep drop — and has done so in recent weeks — investors appeared unable Friday to set aside their concerns about a weakening housing market and tightening credit......

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July 10, 2007

Bill Moyers interviews Gretchen Morgenson of the New York Times - a fascinating discussion about the housing crisis. How it came about and who is left holding the bag - you guessed it, the little guy. She says no good will come of a federal government bail out - it will only reward those taking advantage of the little guy. The best way to solve the problem is for those responsible to feel it in their bottom line. Part 1 Part 2...

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June 30, 2007

From Dean Baker, author of The Conservative Nanny State, at Truthout: The latest data on housing sales showed that the inventory of unsold homes climbed to 4.4 million in May, yet another record. The current inventory would be more than a full year of housing sales in the mid-nineties, before the housing bubble began to take off. There is also a record inventory of new homes for sale. Economists usually expect that excess supply leads to a drop in prices, and in this case, there is a considerable excess supply of houses. In fact, house prices by many measures are already falling. The National Association of Realtors reports that the median price of an existing home is down by 2.1 percent from its year-ago level. Prices have fallen by much more in some local markets. For example, an index constructed by Yale economist Robert Shiller shows that house prices are...

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June 23, 2007

From Bloomberg: The worst is yet to come for the U.S. housing market. The jump in 30-year mortgage rates by more than a half a percentage point to 6.74 percent in the past five weeks is putting a crimp on borrowers with the best credit just as a crackdown in subprime lending standards limits the pool of qualified buyers. The national median home price is poised for its first annual decline since the Great Depression, and the supply of unsold homes is at a record 4.2 million, the National Association of Realtors reported. ``It's a blood bath,'' said Mark Kiesel, executive vice president of Newport Beach, California-based Pacific Investment Management Co., the manager of $668 billion in bond funds. ``We're talking about a two- to three-year downturn that will take a whole host of characters with it, from job creation to consumer confidence. Eventually it will take the stock market...

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June 16, 2007

Check out this clip from You Tube about the housing market, where one smart guy, Peter Schiff, is shouted down by four fools. I suspect, though, they are paid well to be that foolish (except maybe the dumb blonde guy who seems genuinely to be unable to manage stringing two coherent words together). You Tube clip of Fox News Schiff, as quoted elsewhere: "This week's home sales data illustrate the fundamental differences in how home builders and home owners are dealing with a weakening market. The new home sales report shows builders acting like sober-eyed businesspeople, slashing prices to move bloated inventory. The existing home sales report shows homeowners clinging to their dreams of real estate windfalls. It is only a matter of time before homeowners realize that the dream is over, and that price cuts are now necessary to sell their homes."...

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May 24, 2007

From Money Magazine: Robert Shiller is worried about your home's value, and that's not good. A finance and economics professor at Yale, Shiller proved he could see a crash coming with his book "Irrational Exuberance," which forecast the end of the 1990s stock bubble and hit bookstores in March 2000 - almost to the day the Nasdaq started to collapse. Today, Shiller believes homes are roughly as overvalued as stocks were then and, once again, he's worth listening to. A research company he co-founded, Case Shiller Weiss, created the definitive index of housing prices. A newer venture, MacroMarkets, designs ways to hedge against risks like falling home values. In short, no one else knows the history - and perhaps the future - of U.S. real estate prices better. Shiller spoke recently with Money's Jason Zweig. Question: What caused the stock bubble, and why did it end as it did? Answer:...

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April 21, 2007

This isn't popular with anyone I know, and I tend to hang out with liberals. The conservatives are saying, see, we told you so. So what are the Senate Democrats thinking? We are supposed to give our money to people who had no business buying in the first place (or buying as much as they did)? And what about all the responsible people who are renting, patiently saving up until they can afford to buy, after the irresponsible people drove up the prices? That's a double kick in the ass. If the Senators are doing this under the guise of helping out political contributors in the financial sector left holding the bag after they overplayed their hand swindling people, they had better be aware of all the voters they are alienating in the process. From Diana Olick at CNBC: Let me be perfectly clear, any elected official that supports public...

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April 20, 2007

From the Baltimore Sun: The wholesale lender purchasing the loan from the broker doesn't look hard at the appraisal, and funds the excessive loan amount none the wiser. Public records do not reflect the $75,000 slush in the transaction. The realty agents and loan brokers pocket their commissions; the buyer pockets the cash from the closing proceeds, makes loan payments for a while and then stops. Within months, the property is headed to foreclosure. Have inflated appraisals helped fuel the current surge in foreclosures by credit-strapped borrowers? Are they at the core of many mortgage fraud schemes? The four largest trade groups representing appraisers say yes - and they are asking federal financial regulators to crack down on lenders and loan officers who pressure appraisers to raise valuations to allow overpriced deals to go through. Led by the 22,000-member Appraisal Institute, the groups told regulators last week that subprime lenders...

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From eFinance: Many local housing advocates say the trouble has only just begun. As rates reset on adjustable rate mortgages and principal payments kick in on interest only loans, it's only a matter of time before more suburban homeowners find themselves in a pinch. Foreclosures in the Baltimore suburbs are rising at an alarming pace. Foreclosure filings in the 'burbs are up by more than 15 percent overall; in some of the wealthier Baltimore neighborhoods, filings are up by as much as 30 percent. The suburbs have long been associated with the affluent middle class, but as the old saying goes, 'time changes everything'. Foreclosure filings are now rising four times faster in the Baltimore suburbs than they are in the city. Court records indicate foreclosures increased by more than 15 percent in the suburbs last year. In comparison, foreclosures increased by less than 4 percent in the city. Baltimore,...

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As seen on Nikki's Baltimore Housing Bubble blog, an article from Mark Kiesel (also check out this rent vs. buy calculator from the New York Times): Based on the current outlook for housing, I will likely be renting for one to two more years. While many factors that influence housing prices have turned negative, I suspect we have not yet hit bottom. In fact, housing prices should head lower throughout the rest of this year and next year as well.In a down housing market, the gap between buyers and sellers widens, and volumes fall. Buyers pull back and sellers take time to realize their listing prices are too high. Eventually, housing prices in entire neighborhoods will get reset downward by the weakest hand. Just as prices went up and everyone in the neighborhood applauded the newest neighbor who bought at the top, prices will likely start to fall as financially-stretched...

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April 12, 2007

We should give money to the people who, after a lifetime of not saving money and not paying their bills on time, bought a house they couldn't afford, often by lying about their incomes? Worse than that, we should bail out the businesses that made it all possible? From the AP: Amid new signs that the housing slump is worsening, key Senate Democrats said Wednesday that hundreds of millions of dollars of new federal aid may be needed to assist homeowners at risk of foreclosure. The call for federal involvement from New York Democrat Charles Schumer, chairman of the Joint Economic Committee, came on the same day the National Association of Realtors forecast that the median price for existing homes will decline for the first time since 1968 as a sales slump worsens. “We will be proposing significant amounts of dollars,” Schumer told reporters after being asked if a large...

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March 20, 2007

From Bloomberg: Mortgage fraud is committed when a borrower misrepresents himself or his finances to a lender. Some of that fraud involved speculators. They drove up prices during the boom by ordering new homes with the intent of selling them immediately after taking possession. That "flipping" inflated demand and put the speculators in competition with the homebuilders, propelling the median U.S. home price to $276,000 last June from $177,000 in February 2001. A lot of the housing bubble was speculation. When home prices got so high that speculators could no longer turn a profit, they canceled their contracts and walked away from their down payments. Cancellation rates for new homes have surged to almost 40 percent of home contracts." Hold on to your assets. The deepest housing decline in 16 years is about to get worse. As many as 1.5 million more Americans may lose their homes, another 100,000 people...

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March 11, 2007

From Reuters: "This implies a purchase contraction of 1.1 million borrowers. That's a non-trivial number." Tougher lending standards stemming from the shakeout in the beleaguered subprime mortgage industry could prevent up to 1.1 million U.S. homebuyers from getting mortgages this year, a Bear Stearns analyst told investors on Friday. Banks and mortgage companies would sharply scale back lending to two groups: subprime and "Alt-A" borrowers, said Dale Westhoff, Bear Stearns' head of mortgage-backed research. Consumers with low income and/or spotty credit histories are considered subprime borrowers, while Alt-A borrowers are typically those who fall short of being prime because they lack adequate income documentation. Westhoff estimated a 30 percent, or $180 billion, contraction in the subprime sector in 2007 from 2006, and forecast a 25 percent, or $100 billion, decline in Alt-A loan production from last year. "This implies a purchase contraction of 1.1 million borrowers," said Westhoff who was...

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March 08, 2007

From the Wall Street Journal: The mortgage industry is battling a rash of cases in which borrowers, loan officers and appraisers collude in providing false information to induce lenders to advance more money than homes are worth. The mortgage market has been roiled by a sharp increase in bad loans made to borrowers with weak credit. Now there are signs that the pain is spreading upward. At issue are mortgages made to people who fall in the gray area between "prime" (borrowers considered the best credit risks) and "subprime" (borrowers considered the greatest credit risks). A record $400 billion of these midlevel loans -- which are known in the industry as "Alt-A" mortgages -- were originated last year, up from $85 billion in 2003, according to Inside Mortgage Finance, a trade publication. Alt-A loans accounted for roughly 16% of mortgage originations last year and subprime loans an additional 24%. The...

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March 07, 2007

From Paul Krugman in the New York Times: The great market meltdown of 2007 began exactly a year ago, with a 9 percent fall in the Shanghai market, followed by a 416-point slide in the Dow. But as in the previous global financial crisis, which began with the devaluation of Thailand’s currency in the summer of 1997, it took many months before people realized how far the damage would spread. At the start, all sorts of implausible explanations were offered for the drop in U.S. stock prices. It was, some said, the fault of Alan Greenspan, the former chairman of the Federal Reserve, as if his statement of the obvious — that the housing slump could possibly cause a recession — had been news to anyone. One Republican congressman blamed Representative John Murtha, claiming that his efforts to stop the “surge” in Iraq had somehow unnerved the markets. Even blaming...

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March 06, 2007

From Calculated Risk: From MarketWatch (hat tip: yal): Builder CFO doesn't see spring turnaround for housing Home sales haven't rebounded dramatically so far this spring selling season, which suggests a hoped-for recovery in the housing market won't play out as soon as some had expected, Toll Brothers Inc.'s chief financial offer said Monday. ... [CFO Joel Rassman] said headlines on the subprime market "make customers nervous" and added the housing market could feel significant impact in the next month, such as foreclosures and more speculators quitting the market. Subprime is not directly "a big part of Toll's market", but real estate works like a sequence of chain reactions. If a subprime borrower can't purchase a starter home, the seller can't buy a move-up home, and that seller can't buy a Toll Brothers McMansion....

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February 25, 2007

From Rex Nutting at Marketwatch: There are two universal truths at the National Association of Realtors: 1) It's always a good time to buy or sell a home; and 2) We've seen the worst of the housing market correction. The second truth was in the script used throughout 2006 by David Lereah, chief economist for the NAR, even as sales plunged by 8.4%, the fastest decline in 17 years. With annual sales of 6.48 million, 2006 was the third best ever, but after five years of steady increases, it was a rough year for the industry. Through it all, Lereah never stopped smiling. At the beginning of 2006, Lereah was projecting home sales would fall about 4.4% to 6.79 million. In the end, however, the decline was about double what he'd projected. For 2007, Lereah is currently projecting a decline of about 0.9% to 6.42 million. Here's what Lereah was...

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February 21, 2007

From Eric Margolis: Chaos in US-occupied Iraq, and the collapse of its banking system and Ba’ath Party-run social programs, forced Washington to rush 363 tons of US $100 dollar bills to Baghdad. This money, which belonged to Iraq, came from the UN-run “Oil for Food” program. Bremer’s people dished out $12 billion by the truckloads and bagfuls. Another $800 million was stolen by US-appointed officials of Iraq’s Defense Ministry.But Bremer’s missing $12.8 billion was just the tip of the corruption iceberg. US corporations in bed with the Republican Party’s rightwing, like Halliburton, and mercenary-supplier, Blackwater, made billions out of Iraq. Halliburton, whose former CEO was VP Cheney, was awarded $16 billion in questionable Iraq contracts. “A billion here, a billion there, pretty soon you’re talking about real money,” famously quipped US Senator Everett Dirksen back in the 1960’s. The US government has just estimated that President George Bush’s occupations of...

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From Barron's: ...Costco is among a handful of retailers that has flourished despite Wal-Mart Stores' onslaught; Wal-Mart's more downscale Sam's Club chain runs second to Costco. With its strong labor relations, low employee turnover and liberal benefits, Costco has been called the "anti-Wal-Mart." Its approach has paid dividends because Costco, based in Issaquah, Wash., hasn't encountered the same community resistance as Wal-Mart when it has sought to open stores. "Retailing isn't rocket science. Costco has figured out the big, simple things and executed with total fanaticism," says Charles Munger, a Costco director for the past 10 years. The outspoken Munger, 82, is better known as Warren Buffett's longtime partner at Berkshire Hathaway, where he serves as vice chairman. Crucial to the chain's success is CEO Jim Sinegal, who co-founded Costco in 1983 with Jeff Brotman, the company's chairman. "Jim would be on any intelligent list of the top 10 retailers...

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January 21, 2007

From the Washington Post: The federal government keeps getting bigger. The Republican Party's oft-stated affinity for smaller government has not applied during the Bush administration. According to a recent study, not only is the number of federal civil servants on the rise, but so are the numbers of employees working for government-funded contractors and for organizations that receive government grants. Roll all of those together -- and mix in the numbers of postal workers and military personnel on the federal payroll -- and the "true size" of the federal government stands at 14.6 million employees, said Paul C. Light, the study's author and a government professor at New York University. That compares with 12.1 million employees in 2002, said Light, who has tracked the growth of government for years and has data for as far back as 1990. The latest increase is almost entirely due to contractors, whose ranks swelled...

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From Lorraine Mirabella in the Baltimore Sun: The pileup of vacant homes becomes a factor in market dynamics, putting more pressure on prices and, short-term, prolonging the slump. "The longer homes for sale remain vacant, the more desperate on average become the sellers," said Anirban Basu, an economist who is chairman and chief executive of Sage Policy Group Inc. in Baltimore. "The growing number of vacant homes means more sellers out there are ready to be realistic about the market to drop prices." Steve and Debbie Lombel put their four-bedroom Colonial in Odenton on the market in May, figuring it could take maybe four months to sell a house in the mid-$800,000 range. "We felt pretty confident," said Debbie Lombel. "It showed well and was a nice house on a nice lot." But eight months later, the now-empty house is still sitting on the market. The couple and their children...

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January 06, 2007

From the Boston Herald: The housing cool down could lead to the loss of 1.4 million jobs by the end of 2008, pushing up the national unemployment rate to 5.8 percent. Real estate downturns have contributed to three prior recessions. How bad is the real estate market? At a national conference today, Wellesley College housing guru Karl Case will release the results of a five-month groundbreaking survey of the housing market in Boston’s suburbs. And it’s not happy reading. After tracking 628 homes on the market from July through November, Case found that fewer than a third actually sold. It paints a picture of a market nearing a standstill, in which would-be sellers are opting to take their homes off the market rather than accept big markdowns. Over such a lengthy period, even in a slow market, one could expect 70 percent of these homes to have sold, Case estimates....

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December 29, 2006

In other words, if so many people hadn't been using their houses as ATM machines, what would GDP look like in recent years? Check out the story and graph at Calculated Risk... And some findings from Demos: Households cashed out $715 billion worth of home equity between 2001 and 2005. In the three years between 2003 and 2005, owners extracted $150 million more in equity from their homes than they did in the previous eight — a level three times higher than any other three-year period since Freddie Mac started tracking such data in 1993. Households have used cash equity from their homes to cover living expenses and pay down credit card debt, further eroding their homes’ cash value, which many families rely on for economic security. Between 1973 and 2004, homeowner’s equity actually fell—from 68.3 percent to 55 percent. In other words, Americans own less of their homes today...

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December 22, 2006

From Market Watch: The fate of the housing market is no longer in the Federal Reserve's hands, since psychology has now become the driving force behind the decline in home prices. This means that last week's reported plunge in housing starts and building permits is likely to be followed by more of the same for the foreseeable future. See full story. As everyone knows by now, the 17 hikes in interest rates engineered by Fed policymakers since the middle of 2004 have punctured the housing bubble -- the same bubble that the Fed, itself, helped create earlier when it pushed rates to a 45-year low. The bubble blew up from the bottom of the market, as ultra-low interest rates, combined with creative financing by banks and other lenders, enabled people who otherwise wouldn't have qualified for mortgages to purchase homes. Once the Fed decided to raise rates, lots of low-end...

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December 19, 2006

From Thom Hartmann at Common Dreams: The Dubai Ports World deal is waking Americans up to a painful reality: So-called "conservatives" and "flat world" globalists have bankrupted our nation for their own bag of silver, and in the process are selling off America. Everything today is driven by profits for multinationals, supported by the lawmaking power of the WTO. Thus, parts for our missiles are now made in China, a country that last year threatened us with nuclear weapons. Our oil comes from a country that birthed a Wahabist movement that ultimately led to 14 Saudi citizens flying jetliners into the World Trade buildings and the Pentagon. Germans now own the Chrysler auto assembly lines that turned out tanks to use against Germany in WWII. And the price of labor in America is being held down by over ten million illegal workers, a situation that was impossible twenty-five years ago...

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Every single solitary thing in stores is made in China! It wasn't that way before. You used to see cool things from Europe, or Mexico or South America, or the U.S. Now, only lesser quality things made in China. The beauty of cultures making what they make best and offering them for sale has been lost, replaced by a cheap, soulless manufacturing process. Don't buy "Made in China" junk. Buy goods from our country and all over the world at antique stores. Buy locally made goods at arts and crafts shows. Scan catalogs and websites and bypass goods where the country of origin is not identified, or it merely says "Imported". "Imported" is the code word for "Made in China"....

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December 09, 2006

From the Atlanta Journal Constitution: The danger for the overall economy is that a rising pool of foreclosures will overflow into other segments of an already troubled real estate market. Homeownership, construction and sales reached unprecedented levels, partly because lenders tried so hard to get people into houses. Hundreds of Georgians lost their homes Tuesday. The houses, taken from debt-laden homeowners, were sold to bidders on courthouse steps statewide. The increasingly busy monthly auctions show that not all of the residential market is in decline. Foreclosures are rising. More than 115,000 properties across the country were in the foreclosure process in October — up 42 percent from the same month a year earlier, according to RealtyTrac, a California company that tracks foreclosures. Foreclosures in Georgia are up a stunning 99 percent in the past year. The state now has the nation's third-highest rate of foreclosures: One in every 449 households....

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December 07, 2006

From Information Clearing House: By Linda Bilmes linda_bilmes@harvard.edu and Joseph E. Stiglitz jes322@columbia.edu 11/03/06 "Milken Institute Review" -- -- In January, we estimated that the true cost of the Iraq war could reach $2 trillion, a figure that seemed shockingly high. But since that time, the cost of the war – in both blood and money – has risen even faster than our projections anticipated. More than 2,500 American troops have died and close to 20,000 have been wounded since Operation Iraqi Freedom began. And the $2 trillion number – the sum of the current and future budgetary costs along with the economic impact of lives lost, jobs interrupted and oil prices driven higher by political uncertainty in the Middle East – now seems low. One source of difficulty in getting an accurate picture of the direct cost of prosecuting the war is the way the government does its accounting....

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December 06, 2006

Add this to the millions of adjustable rate mortgages due to reset next year. From the Wall Street Journal: Americans who have stretched themselves financially to buy a home or refinance a mortgage have been falling behind on their loan payments at an unexpectedly rapid pace. The surge in mortgage delinquencies in the past few months is squeezing lenders and unsettling investors world-wide in the $10 trillion U.S. mortgage market. The pain is most apparent in subprime mortgages, though there are signs it is spreading to other parts of the mortgage market... Subprime mortgage originations climbed to $625 billion in 2005 from $120 billion in 2001, according to Inside Mortgage Finance, a trade publication. ... Until the past year or so, delinquency rates were low by historical standards, thanks to low interest rates and rising home prices, which made it easy for borrowers to refinance or sell their homes if...

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November 29, 2006

Enough with people claiming the market has "stabilized" - give me evidence, or stop saying it. It hasn't even bottomed out yet. I saw this comment in a housing market blog (sarcasm on): "It's a new paradigm, and everybody who doesn't buy, now, will be priced out forever. Anybody who does buy will be rewarded with a lifetime of riches, as their property will continue its 30% yearly price increase. Renters, and anybody born in a future generation, will not be able to afford a $10,000,000 starter home in 15 years. They will live in tent cities, and Hondas. This asset bubble is different than all of the others - it will never slow down, or pop. The gains are permanent." From Marketwatch: Below is a sampling of recent CEO comments on the housing market: "We've got another year to go . . . the rest of 2006 as well...

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November 26, 2006

From the Montreal Gazette: Besides a surge in mortgage lending for home purchases, Americans cashed out $740 billion from their houses in 2005 alone through refinancings and home-equity loans, according to the Federal Reserve. The Fed estimates half of that cash went to buy goods and services - cars, granite counter tops, vacations. It's called using your house as an ATM. Paulette Mendes climbed the stairs out of the rain and quickly noticed tears on the face of her neighbour, Ana Martinez. "You okay?" Mendes called across the porch of Martinez's imposing turn-of-the-century home. "I'm okay," Martinez murmurs. "You sure?" Martinez is not okay. Her three-storey turquoise-and-yellow house in the Dorchester section of Boston is scheduled to be auctioned in December because she's far behind on her mortgage payments. She was all but out of hope. The 55-year-old grandmother says her three adult children and siblings have turned their back...

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November 24, 2006

From Mike Whitney at Op Ed News: They doubled the money supply and then sat back and watched while $4.5 trillion went directly into the real estate market via mortgage loans to people who were "under-qualified"(knowing that these same people would eventually fail to meet their payments and adversely effect the entire market). The Federal Reserve knew all of this. In fact, they knew where every dime was going, but decided to persist in their swindle to the bitter end. Give me 5 minutes and I'll convince you that you should sell your house immediately and invest your life-savings in gold or a Swiss bank-account. Okay? For some time now we've been hearing about the so-called housing bubble and what effect it could have on your net worth and future. Well, the numbers are finally in and you can decide for yourself whether its time to sell now or try...

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October 31, 2006

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October 29, 2006

From Bloomberg: An unexpected increase in auto production last quarter was a statistical fluke that will be reversed, making current U.S. economic growth even weaker, according to a former Commerce Department economist. Last quarter's annualized 26 percent increase in auto production shocked Joe Carson, now director of economic research at AllianceBernstein LP in New York. Without the gain, the economy would have grown at an annual rate of 0.9 percent, not the 1.6 percent the Commerce Department reported today. The increase in output came despite cutbacks announced by General Motors Corp., Ford Motor Co. and others. A drop in the wholesale price of SUVs and light trucks as the automakers cleared leftover 2006 models made production look stronger than it actually was, said Carson. The economic fallout from the auto-industry cutbacks will instead come this quarter, he said. ``Last quarter was weak even with the benefit of this mismatch and...

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October 26, 2006

From the AP: Is this what a housing bust looks like? New home prices fell last month by the largest amount in 35 years and owners are being warned to brace for further declines, especially in formerly hot markets. After years of increases, some buyers say prices are still out of their range. The Commerce Department reported that the median price for a new home sold in September was $217,100, a decline of 9.7 percent from September 2005. That was the lowest median home price in two years and the sharpest year-over-year decline since December 1970, providing dramatic evidence of the slowdown in the once-booming housing market. The median price is the middle point, where half sell for more and half sell for less. The price decline for new homes followed a report Wednesday that prices in the much bigger existing home sales market also dropped on a year-over-year basis...

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