Had the first snow storm here in Northern Massachusetts today. Always a fun drive when the white stuff falls. It never ceases to amaze me that even lifelong residents need the first storm to relearn the whole "a car will not stop on a dime when there is snow and ice" rule. Several cars spun out on the side of the road and several fender benders may serve as a reminder.
Market Ticker has a very useful post up tonight, and I recommend giving it a read:
While I am on the home state for the moment, there seems to be a movement to try and get a ballot question in for the next election here that would abolish the state income tax! (http://bostonherald.com/news/regional/politics/view.bg?articleid=1048331)
A similar attempt was rejected in 2002 by the voters here, myself of course not included. Here at Economic Disconnect I spend a bit of time trying to highlight the vast difference between perception and reality. Massachusetts is a poster child for all that is wrong with government today. The legislature here is around 92% democrats. I make no judgement on whether they are democrats, republicans, or martians. The point is that when a state government is almost 100% of one party line, they can and will do whatever the heck they want because they have zero fear of being voted out of office. A while back there was a question on the election ballet to roll back the state income tax from 5.6% down to 5%. The measure won a commanding 70% of the vote to cut the tax rate. The fine folks in the government here decided that the money was needed too much, and simply stated that the wording of the ballot question meant that the tax cut would be taken under advisement! Stunning. That is not democracy my friends, that's criminal. How many officials lost their seats in the next election? ZERO is exactly right. Basically whatever happens with the tax question does not matter, because here in Massachusetts what a voter wants is a non issue to the permanently elected government. Again, this is not a democrat thing. I am sure there are republican states in the same boat that abuse their super majority powers just the same. The take home point is that you can never allow blind partisanship to take your vote away.
Is a Recession All Powerful?
Lately the discussion of a dreaded possible "recession" has taken root in the media. This beast has been portrayed to be able to cause job losses in the hundreds of thousands, make foreclosures increase exponentially, and cause a comet to hit the earth by perturbing the Oort Cloud. The last one I was kidding about. From today's headlines at Yahoo Finance:
Housing Execs Warn the Worst Is Coming
Monday December 3, 6:16 pm ET By Alan Zibel, AP Business Writer
Mortgage Industry Execs Praise Treasury Plan As They Warn of Further Slides in Housing Market
"WASHINGTON (AP) -- The CEO of the country's biggest mortgage lender says greater government intervention is needed to rescue the U.S. housing market as his peers warn the worst is yet to come."
"Kerry Killinger, chief executive of major lender Washington Mutual Inc. said problems are starting to show up in loans made to homebuyers with strong credit records because real estate prices continue to slide. He said he supports the central bank cutting interest rates again as well as temporary expansions of Fannie Mae and Freddie Mac's funding capacity."
So the worst is yet to come, but the government should pile on in and help? OK. Even folks with strong credit records are in trouble due to falling housing prices? I guess they did not put any money down. I imagine that those "strong" buyers are in need of the serial refinance game to keep going. This calls into question just what a strong buyer means to the industry. You have to love the "temporary" qualifier for the expansion of Fannie and Freddie! I'm sure it would be temporary.
"Echoing the complaints of consumer advocates who have long pushed for mortgage lending reform, Robert Toll, chief executive of luxury homebuilder Toll Brothers Inc., said stronger restraints are needed to prevent a recurrence of today's problems.
"We had mortgages available to the alive and standing and that was the only criteria," he said. "There's no reason why we can't set limits."
Toll also said home prices "may not have stopped falling yet," adding that it may not "be the best time to buy a home."
Mark Zandi, chief economist at Moody's Economy.com, predicted that, if the economy slips into recession or if efforts to modify loans don't pick up substantially, the housing market downturn could last through the end of the decade.
"This is the most serious housing downturn since the Great Depression," Zandi said."
Who woke Bob Toll up? Lending standards were too easy? Now may not be the absolute best time to buy a home? I would like to offer the new Bob Toll a guest blogger spot here at Economic Disconnect as he sounds just like me all of a sudden!
The comments by Mr. Zandi are not unique to him. I remember a few days ago the Goldman Sachs housing forecast said basically the same thing. The thinking right now is that a real recession will worsen the housing situation. I imagine it would, but what real difference would it make? If the US economy grows at say .8% or we have a recession of say -1% contraction, is that really going to matter one iota to the housing collapse?
I was a bit young during the early 1990's recession, but I remember well the mini recession of 2001. Nothing happened. I remember a few IT friends of mine had to find new jobs when the start up they were at went out of business, but that's about it. I fully admit that I may not have a real grasp of what a real recession is like. Perhaps someone with more experience can leave a comment and let the readers know his/her experiences? I would appreciate that.
My point is that the home price slide is already in motion. The structural problems are so deep and widespread that housing is going to be bad for a long time, regardless of a recession. Perhaps a recession would speed up the event, but will not add to the pain. Maybe I am wrong. I just think that analysts making predictions that a recession will make things worse for housing are still not grasping just how bad housing is going to get all on it's own.
Recessions have happened before, and will again. The FED and the banks seem intent on averting a recession at all costs. Perhaps a recession would really usher in a "Red Pill" moment for the debt based US economy? Sadly, I really don't know. All indications at this point is that we may find out, and soon.
Mozilo Interview Weak and Scary
I was able to catch CEO Angelo Mozilo's interview given on CNBC with Maria Batiromo. He really should not have bothered. He was evasive when asked about bankruptcy and declined to comment on a possible dividend cut. He seemed visibly uncomfortable, and he had a sly "yeah right" smile whenever he stated how strong CFC was. If you were looking for reassurance form the CEO of the one of the largest mortgage players out there, you were disappointed. Angelo should be ok though, as he has unloaded so much CFC stock he will be rich, even if we have a recession!
I will include a funny picture for comic relief:
moar funny pictures
Have a good night.