10
Jul
Foreclosures Surge As Economy Slides and No Fix Is On The Way
THE ECONOMY: THE LATEST BAD, BAD NEWS
“WASHINGTON - The number of homeowners stung by the rout in the U.S. housing market jumped last month as foreclosure filings grew by more than 50 percent—53%-compared with June a year ago, according to data released Thursday.”
MAKE SENSE OF THIS DISASTER
Even when you try to make sense of our economic crisis, the doublespeak on the issues is so thick that you can’t even cut it with a knife. In Washington yesterday for a press conference by NACA, the Neighborhood Assistance Corporation of America, the organization fighting predatory lenders and foreclosures, it was hard not to notice that this issue at the center of our economic downturn is being misreported.
All the big poobahs of economic policy were in the news in the last few days—The Fed’s Ben Bernanke,. The Treasury’s Hank Paulson, word that the Senate will reconvene to pass a “reform measure, reports that there was a panic amidst rumors of a sell-off or Fannie Mac and Freddie Mac, the publicly owned housing financiers,that the SEC found conflicts among rating agencies—on and on. Al of these stories were in the paper as was a lead item in USA TODAY on the terrible affect foreclosures have on children.
Yet only two newspapers sent reporters to hear from the victims of the crisis, the homeowners. Only two. Hundreds of media outlets were notified. Only the Washington Post and Wall Street Journal showed up to hear from representatives of the three and a half million families facing foreclosure.
Given the media coverage of the crisis, I am not surprised, and will offer one explanation in my forthcoming book.
What was covered? Here’s a convoluted sentence on the Freddie/Fannie mess from the Post Editorial. “It is not so much the short term viability of Freddie and Fannie that are in doubt—though their collapse is all too thinkable.” RUN THAT BY ME AGAIN. The collapse is “all to thinkable” but their viability is not in doubt. Does this make any kind of sense.
Then there is a report that Treasury Secretary Paulson EXPECTED all these foreclosures. Oh, really. If he expected it, why didn’t he say anything sooner? Why did his Adminstration do so little?
Here’s the CNN story, blaming the victims for the crime:
”Faced with record-high foreclosure rates, the Bush administration has been scrambling to keep people from losing their homes, but many are beyond help, Treasury Secretary Henry Paulson said. Lax lending standards that accompanied the once high-flying housing market allowed people to buy homes they could not afford, Paulson said. In remarks to a mortgage-lending forum, Paulson said, “There is little public policymakers can, or should, do to compensate for untenable financial decisions.”
Underscore those words: “CAN OR SHOULD DO.”
Next up was Ben Bernake who made a tough speech proposing new rules regulating exotic subprme loans. The only problem here is that the industry has collapsed under the weight of its own greed so this is another case of too little, too late.
And then thre was the Post itself which played what is arguably the most important story in the number of dollars affected as a small item on page D2. It reported that the SEC, The Security and Exchange Commission found that there were major conflicts of interest by rating agencies like Standard and Poors, Moody’s and Fitch Ratings that gave high ratings to subprime securities, many of which were worthless. Those ratings suggested that they were most marktable. Apparently, the investment banks were PAYING THE RATING AGENCIES FOR THEIR WORK.
This major scandal was treated not a a criminal matter but as a ho-hummer. Reported the New York Times: “The three main credit-rating agencies failed to rein in conflicts of interest in giving high ratings to risky securities backed by subprime mortgages that later collapsed, federal regulators said. The results of the yearlong review by the Securities and Exchange Commission illuminate the role of Wall Street’s credit rating industry in the turmoil that has gripped the financial markets.”
Rueters: Dimon says credit crisis could worsen
ARLINGTON, Va (Reuters) - JPMorgan Chase & Co Chief Executive Jamie Dimon said on Tuesday some problems in the credit markets have been resolved, but that does not mean market conditions will not deteriorate further.
In short, none of these geniuses have any solution and are into spin, not confronting reality.
No wonder then that the lead is being buried but not in the Financial Times:
“Hopes that the beleaguered U.S. housing market might be in the early stages of a recovery were dented after an index of pending home sales recorded an unexpectedly steep 4.7 percent drop in May. The National Association of Realtors index, which measures contracts that have been agreed but not yet closed and is a leading indicator for completed home sales in the future, fell from 88.9 in April to 84.7 in May, surprising economists who had been expecting a drop of about 3 per cent”
ZOGBY POLL: Most Americans Believe World Locked in Recession
THE MASTER THEORY: DEEP CAPTURE
Check this out and tell me what you think?
CHALLENGE TO MY RECENT CREDIT CARD CRISIS ARTICLE
Danny Schechter:
There’s an exaggeration in your recent article:
House of Cards
You thought the housing crisis was bad? You ain’t seen nothing yet.
By Danny Schechter
The Mess28/06/08 “LA CityBeat”
- - -
You wrote:
“And also in March the government reported that for the first time since the Depression, Americans owe more on their homes than they have in equity. Essentially, on average, America is broke and its credit cards played a dominant role in getting there.” [underlining added]
In aggregate, as a nation, we are not that broke, so something is wrong with the presentation.
Equity is Fair Market Value (”FMV”) less total debt (mortgage and HELOC). The quoted lines assume that equity is the total FMV, but that’s not fair.
A numerical example quickly makes my point:
If a house has a FMV of $300,000 and the debt balance on that house is $250,000, the equity is $50,000, even though the debt of 250k is five times the equity of 50k. Sure, many homes bought in 2007 and early 2008 and even in 2006 and earlier in some areas are “under water.”
But as a nation, if we have a residential debt to equity ratio of greater than 1.00 (the stat I think you referred to), calling that “broke” misleads.
As a nation, in aggregate, we are not underwater. Not even close.
Bernie Klein
P.S. Reviewing this email, I noticed the double negative in your subtitle. Cute. An extra whack at the cc purveyors, and a message to consumers: two (or any number of even) negatives in this area do not make a positive.
It’s hard to look at historical numbers on individual debt, compare them to the present, and try to reach any conclusions. For one thing, in the past people didn’t have much debt — you bought on layaway, or on time, or had a land sale contract and did not “own” the property until the contract was paid, so the amount owed was not really a debt. Even in more modern times, people’s debt tended to be fully secured — by the house. And the government formerly prohibited the knee-busters like Citibank from charging usurious interest rates. Owing $1000 at 10%/year interest is manageable. Owing it at 25%, or 35%/year interest is not. It likely means the actual amount of debt keeps going up, principal is not paid down.
Anyone can look at today’s economy and say the economy is strong. Listen to Bush. What they mean is that the elite is monopolizing the industries of the world, staging phony shortages to artificially run up prices, gouging consumers, and there is nobody in the world who can stop them. Wall Street has looted the businesses of the U.S. like locusts, and now they’re out looting the resources of the rest of the world. They’re doing just fine. It’s the rest of us who aren’t.
As for debt to value in home ownership, the post-war generation (our parents) paid their houses off long ago because the government provided them with a country designed to help them do that: affordable houses, affordable loans, fair interest, life-time employment, employer and government-paid healthcare and pensions, and relatively low taxes for much of their working lives.
The next generation has not done so well. We have sporadic employment with periods of unemployment to wipe out savings; college is horrendously expensive; no employer-provided healthcare or pensions; unaffordable houses with so many fees and charges tacked onto loans that we can’t even tell what the interest rate is.
Then the younger generation: they don’t own a home. They think they do, but they don’t. They borrowed 100% because they can’t afford 20% of a $500,000 home ($100,000 in cash), and the market is down so they owe more than the house is worth.
I anticipate future generations will own even less. Prices will be held high by the financial vulture funds who will buy up tracks, 50 year loans will become the norm, and nobody will ever pay it off.
Most of the country is not doing well at all. We can just look at what has been taken away (pensions, healthcare, affordable homes, affordable college, job security) and figure that one out. Ratio or no ratio.
July 10th, 2008 at 7:53 pm