NOTE: Gawains left a comment last post which noted that Freddie Mac offers a 2 year Home Warranty. Gawains, how does that work? What is covered? How is it paid for? I would love to have details on that item.
Isolated Case of Fraud
Look, I am 100% sure some lawyered up market savvy reader/writer can explain away the following clear case of lying, but so did OJ' s defense team so there is that.
Zero Hedge has done some work on the newly released Lehman Failure Report and finds "Repo 105" to be about what you would expect:
The "Repo 105" Scam: How Lehman Fooled Everyone (Including Allegedly Dick Fuld) And How Other Banks Are Likely Doing This Right Now
The post is a heavy duty one and I think it worth your time to check it out. Short version; accounting gimmicks to massage capital ratios gone wild. I am sure they were and still are the ONLY ones doing this. You Betcha!
Cheerleaders and Pom Poms
I had a post in mind for tonight and when I was making the rounds I saw that I was scooped by Mark over at The Illusion of Prosperity blog. While great minds do indeed think alike, I cannot lay claim to inventing one of the most successful computer games ever sold! Here is the post:
Credit Cards Being Paid Off?
NEW YORK — With unemployment high and personal wealth diminished, how was it that strapped consumers were paying down their credit card debt last year? It turns out they probably weren't.
The bulk of 2009's drop in credit card debt instead came because banks were forced to write off loans consumers failed to pay, according to an analysis of Federal Reserve data.
Most headlines just ran the screamer "CREDIT CARD DEBT FALLS", but of course it helps to did a little deeper.
I was thinking along these lines as it seemed today I was inundated with cheers and cheerleading about how great a recovery is happening right now across all things everywhere all at once. After reading a few articles I was puzzled how headlines did not match up with the substance of the piece. The above catch was one example, but there were plenty of others.
From Calculated Risk:
Flow of Funds Report: Mortgage Debt Declines by $53 Billion in Q4
I picked this one because CR is too smart to not know why this is, but many others jumped to the wrong conclusion very quickly. Mortgage debt written off is not quite the same thing as paid off, like in the above credit card example. From the same CR post comes this amazing stat that is pure scary based on this graph:
The scary part:
Note: something less than one-third of households have no mortgage debt. So the approximately 50+ million households with mortgages have far less than 43.6% equity.That is not good in case you were wondering.
Some more headline cheerleading that falls apart when reading the actual story? Next up is this one from Yahoo Finance:
Slowly, Americans are regaining their lost wealth
Sounds good. Let's dig in:
WASHINGTON (AP) -- Americans are recovering their shrunken wealth -- gradually. Household net worth rose last quarter, mainly because the healing economy boosted stock portfolios. But the gain was slight. And it was less than in the previous two quarters.Not exactly a great opening paragraph. Plenty of qualifiers. Why mess with a great headline though? More story:
Net worth had risen by a more robust 4.5 percent in the second quarter of 2009 and an even faster 5.5 percent in the third quarter. Net worth is the value of assets such as homes, checking accounts and investments minus debts like mortgages and credit cards.Stocks are not the primary vehicle of wealth for most households, homes are. The housing ATM was the engine that powered consumption to bubble highs, not stocks. See the Technology Bust for an example, but short version: the tech bust did not bother consumer spending or home equity withdrawals at all.
Even with the gain, Americans' net worth would have to rise an additional 21 percent just to get back to its pre-recession peak of $65.9 trillion. That illustrates Americans' vast loss of wealth from the worst downturn since the 1930s.
Growth in stock portfolios delivered the biggest lift to net worth in the October-to-December period. The value of stocks rose by nearly 4 percent to $7.7 trillion. Higher home prices helped a bit. The value of real-estate holdings edged up 0.2 percent.
An illustration again from this CR post:
The 2000 Tech Bust made a slight dip but the uptrend in extracting any equity one could was in full effect.
CR notes the following:
Equity extraction was very important in increasing consumer spending during the housing bubble and I don't expect the Home ATM to be reopened any time soon. So any significant increase in consumer spending will come from income growth or a lower saving rate, not borrowing.Income growth? Are we not in a deflationary environment? I say consumer spending may be facing headwinds, not tailwinds.
The cheerleader pom poms right now are limited to:
- A rising stock market
- Lower continued job losses
- Census hiring sure to feed headline hyperventilating over the next few months on jobs
Stock market gains do not have the same bang as other asset classes for the regular joe, but they do help. I know several people that did the old 401k loan thing to buy a home at bubble peaks and they get the full prize of:
- Paying back themselves the foll 401k loan amount after seeing the 401k drop 50% or more
- Being underwater on their home
I sure hope they get some income growth!
A final word about housing. Home prices will not return to the last peak for at least 10 years. That's TEN years. That is the minimum and it may well be longer. When thinking about the home plans floating around right now, ask if any are really workable over that time span. If I am wrong and homes reach the past peak in 5 years or less, it is likely we have had a currency issue and that is far worse.
Ok, one more housing nugget, found over at Housing Doom. When asked why I am so negative I like that I can always find a story that backs me up 100%. So the home market has bottomed and now is the time to dive in and go nuts? What about this?:
Politics, shaky economy create no rush to restructure Fannie and Freddie
Some analysts say it's an inopportune time to wind down the companies -- or even hint at major change -- while the housing market and economy remain in bad shape.Nobody say 'Boo' then.
"Any suggestion now about future changes could destabilize the market," said Karen Shaw Petrou, managing director of analysis firm Federal Financial Analytics and a longtime observer of housing finance policy. "The U.S. mortgage market is so fragile that all Treasury needs to say is 'boo' and it could fall apart."
What Kind of News do You Want?
I loved this article from Ultimi Barbarorum blog:
Econobloggers need their crisis back
A well written piece that describes some reasons for the loss of interest in econo blogs after the big panic last year. Worth a read.
Along these lines I have a new poll up which asks what kind of news/stories/content you would like to see now that the recovery is in full swing and all is well in America. Please vote!
Have a good night.