Saturday, April 17, 2010

How Strategic Defaults Are Boosting Consumer Spending AND Reshaping the Economy

[mEDITate-OR:
not understand how "incentives" really work...
in the real world...

These are two very different articles, but they address the same phenomena..., strategic defaults.

Last year, nobody even used the words, let alone knew what they were, how they worked or why the occurred.

That was then, this is now.

The first article is a very lucid explanation of how SD's work in our economy.
What he sees, correctly, is that when you almost eliminate the cost of housing...
you free up funds for other uses.

This is the reverse of divorce, where we learn, painfully, that two cannot live separately as cheaply as together.
Two homes, split visitation space for the kids..., two or more new lovers/friend to support...
Not a pretty picture.

But, here, now, there are a lot of people in the sand states - Cal, Nev, Fla & AZ
who are taking out a "free ride" for as long as it works...

The question this article addresses is:  "What do they DO with all that freed up money?"

The second article
[more to be added later]


===
How Strategic Defaults Are Boosting Consumer Spending
===
How Strategic Defaults Are Reshaping the Economy
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Arizona unemployment rate up slightly - worst since 1983 + Foreclosure rates surge + Gas prices in Ariz. reach 17-month high


[mEDITate-OR:
think that all good things will come to an end....

As one of the worst, sand states, AZ leads the nation...
in getting into trouble, into falling deeper into the cesspool, and in how far it will be to crawl back out.

The first article suggests that AZ's unemployment rate is up, but not that high.

However, IF you compare the number of people "employed", as opposed to UI claims...
you see a very different picture.
While Sherrif Joe A-rap-a-HO might claim to have driven the ill-legal im-me-grunts out of Arid-zone-Ah...
that is not quite true..., it's the economy, stupid...

Almost ALL construction jobs were low paid Mexican laborers. Some may have been here legally, too.

They are now almost all gone. Who, in Hell - aka Arid-zone-Ah - really knows...???

The Second article suggests that while this is true for almost all of U.S...
it is even more true for the sand states - in worse order = Nev, Az, Cal and Fla.

As Jim at Calculated Risk keeps reminding U.S....
almost no body knows anything about the condo numbers...
not how may are available for sale, OR for rent...
how many are really "occupied", or foreclosed on...

for example, if a condo project is 1/3 sold, 1/3 rented and 1/3 empty...
and the lender/bank forecloses on the project...
how may "foreclosures" are there, really...?
and how many units ARE there "for sale"...
the ones rented..., the ones sitting empty...
and how about the ones sold at the peek of the market???

The third article is important to AZ maybe more than elsewhere, other than Dallas...
bcuz, around Phoenix everything is spread way out there...
long commutes were the norm..., to expensive home in the desert...

While this may not affect who can "qualify" for a RE mortgage...
it sure in Hell - aka, here - affects who can afford to buy out there.

The fourth only confirms that even if they are not telling any of U.S. in AZ how bad it really is...
it is worse than it has ever been..., and it is NOT getting better.
no new jobs and lots more people let go.

IF the sales tax increase is not approved, there will be even more massive layoffs...
now including police and fire, along with far to many teachers.
Boogglely.
    

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Arizona unemployment rate up slightly


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Foreclosure rates surge, biggest jump in 5 years

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Arizona's jobless rate worst since 1983
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Jubak: The SEC case against Goldman punctures Wall Street’s “Act of God” defense + The tale of Goldman's fraud charges


[mEDITate-OR:
not see that we could not have said it better ourselves...
unless we did.

So..., we said this:

==========
JGBHimself on 18 April 2010

Not only is the timing not random, it also suggests that this has, is and will continue to explode.

First, this is only a regulatory event.
True, they can recommend criminal action, on the Federal level, but they cannot file it. That is Justices decision.

Second, what the AG in New York – the Federal Attorney and/or the State AG decided to do is another question.
Both state AND Federal laws probably have been broken.

Third, this probably is a RICO crime as well.
That could mean treble damages ordered paid back to all of U.S. that were effected.

Fourth, like a DWI, criminal charges do NOT result in “civil” – well, sometimes they are not all that civil – damages.
What you may, permissive, expect is that each and every Class Action Attorney among U.S. is already typing away on their complaints in their Complaints..., which will also be lodged in their briefs.

As Lawrence showed/told U.S. all…, it is a terrible thing to see...:  wave after wave of Shiites rolling down the hills all around you.

As the Devil will tell you & all of U.S.: Aren’t you even tempted to be a wee, skoshi bit sympathetic?

-----------
The second article is the CNN report on how they did it.

While not definitive, it does provide a very good outline of the charges that the SEC is making.

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Housing Starts mixed in March + March State Unemployment Rates: New Record Highs in California, Florida, Georgia and Nevada


[mEDITate-OR:
not register that this is not a change - for better or worse...
 
What we are now seeing is an "L" shaped recovery.
 
While some things have bottomed out, some are not getting too much worse...
and some are showing U.S. a little life...
the overall picture is a "Japanese" style of recovery...
long..., hard..., and a LOT of pain...

=============


The second graph shows total and single unit starts since 1968. This shows the huge collapse following the housing bubble, and the slow and sluggish recovery in housing starts.


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New Record Highs in California, Florida, Georgia and Nevada


This graph shows the high and low unemployment rates for each state (and D.C.) since 1976. The red bar is the current unemployment rate (sorted by the current unemployment rate).

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RealtyTrac: March Foreclosure Activity Highest on Record + Lawler: BoA and Chase on Second Mortgages


[mEDITate-OR:
not see&read two critical reports on foreclosures AND on 2nd mortgages...
 
To fully understand what is true about 2nd mortgages...
and where they fit into the foreclosure/modification process...
you WILL need to read these two articles.
 
The first article tells U.S. that The Big Banks WERE holding back on foreclosures.
and that now they are not - the flood gates are open.
 
That means there are, and will be many more, additional foreclosed properties added to the RE economy.
 
The second article is one of the best explanations of where the 2nd are, and who is servicing them.
 
What that tell U.S. is that not do The Big Bank control most of the 2nd mortgages...
but, they also control most of the RE servicing.
 
Which means that they COULD have solved/addressed the RE crisis IF they had wanted to.
From the testimony, not just, given it is clear that they do NOT want to do it.
 
Two significant points:
first, IF they addressed the underwater RE loans they made to U.S..., they would have to write off/down not only the lost RE values, but also the 2nd mortgages that they also hold.
IF they did that, they would be required to raise their "capital"..., which they are doing - note their profit reports for the 1st Q.
 
what we believe they ARE doing is making as much "cash"/profits as they can..., anyway they can do it...
so that when, not if, they have to address the RE and 2nd mortgage losses, they have the funds, in house (no pun intended) to do it.
 
second, what we thought was a major problem - that the diffused ownership of the securitized ARM mortgages was preventing the modification of those dead zone - 2002-6, and sand states - Cal, Nev, Fla & AZ, underwater RE loans.
is not totally true.
 
Bcuz, the Big Banks not only MADE many of those RE loans, but they also "service" them.
What that means is that many, but not all, securitized packaged RE loans, simply cannot be modified..., bcuz there is nobody to talk to.
AND
that many more than we thought there were are RE loans serviced by the Big Banks, who simply do not WANT to modify them, even thought they could.
 
We are talking Trillions here.
Wilted rose emoticon
 
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The key ingredient of market bubbles: Greed, arrogance and corruption contributed, but one essential element topped them all


[mEDITate-OR:
miss a really great article by Jubak...
about China, raw materials, and greedy (but not tiny) bubbles...
 
While we may not see, immediately, that China IS pursuing another "industrial policy", they are.
And, it is THEY, and not U.S., who are attacking someone else's monopoly.
 
If we - and Google ? - thought that they were ruthless in Tiananmen Square...
well..., as the song told U.S...., "You ain't seen nothing yet..."
 
However, in this case, WE are all going to be much better off.
Red rose emoticon
 
==============
Friday, April 16, 2010 6:54:19 PM
 
Fascinating & disgusting.
 
However, Jim may we suggest you look at another motive, for China, et al. As you point out they do have a TON of money, no pun intended, that is not earning much. So, what if they do take some of that money, that we gave them in trade, and "invest" it into alternative supplies of a critical raw material. Taking cheap money to use to break the oligopoly that is bleeding them; costs them little, and gives them much. True, it make take a year or two; but look at the "profit" they will get - over the long term. IF you are right, and we believe you are; that this will cause a collapse of the prices the oligopoly can milk out of them - permanently, do you not see what they have really done.

Set themselves up to make a very large profit.
Smile
When we refused to let China buy Chevron, they simply went out and bought access to oil fields. They DO know about "war", and that there are many ways to skin a too fat cat - even if they have to wait til the year of the rat.
Open-mouthed

=========
The key ingredient of market bubbles
Greed, arrogance and corruption contributed to the financial crisis, but one essential element topped them all

=======
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There is real GOLD to be found in Goldman..., you'll see...

[mEDITate-OR:
or not see what "excess" brings you....

Let U.S. not start with the last article, about the US$ 2 Billion new office building for Goldman.
Gawd only knows that they earned it..., the old fashion way..., they stole it.

But, it is symbolic, is it not.
The very rich, most important executives are enclosed in palatial digs....
the Rest of Them..., are "housed" wherever they can spare the room.

Subprime mortgage securitizations to enable them to work in PRIME offices.
What could be more fair than that.
{that is not a question...}

The first article suggests, may we pray to each of our Gods that it is true...
that ALL of the investment bankers will now be scrutinized, closedly...
and held accountable for their excess greed, and manipulations.

The SEC had the power, and did not use it.
The SEC requires some of U.S. to make FULL disclosure, they could require it of all of U.S.

Remember, that just as a DWI is a criminal case, and does not insure any civil penalty...
that this is a "regulatory" action - not civil and not criminal, yet.

The second article tells U.S. what we all already know...
WAMU did it, Countrywide did it, Wachovia did it...
FMae&FMac got around to doing it very late in the game.

In the dead zone - between 2002-7, in the sand states - Cal, Nev, Fla & AZ
over 50% of ALL real estate mortgages were securitized packages - not just, like Goldmans'

If you believe that Goldman Sacks was the ONLY one that packaged the worst of the worst...
and then bet against them with CDO's...
well..., we have some wonderful desert sand state properties we would like to show you, for your investment.

The Third article tells U.S. in excruciating detail, precisely how Goldman defrauded all of U.S.
what it also shows/proves is that this was in intentional tort..., not mere negligence...
AND
it was a RICO crime.
All of them players are not subject to real, federal jail time
and
to treble damages, for what they have done to U.S.

The fourth article only begins to tell the full story...
insurance companies, foreign investors - China, Japan, the Gulf Oil states...
mutual funds, any and all employee pension funds - GM, Ford and Calipers, et al...

You do see, do you not, that ALL police pensions and ALL prison guard pensions were placed in jeopardy.
Plato's questions:  "Who will guard the Guardians?" is not only {Y}our "nice" philosophical inquiry.
It now becomes, for those Bastards, an all consuming problem.
Who WILL protect them from becoming Bubba's bitch...
or sold "out{-ed}" to the Mexican & Columbian drug cartel's prisoners.

IF they are really Good Christians, their God will remind all of U.S. that:

           "Vengeance is MINE, sayest the Lord."

Oddly, we do not believe that is, or will be true.

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Goldman fraud charges trigger possible wider crackdown
===========
Goldman CDO case could be tip of iceberg
==========
Abacus Let Goldman Shuffle Mortgage Risk Like Beads
now with a bigger line between the 'haves' and 'have nots'
Some Goldman Sachs employees are less than satisfied with their new office space
in the firm's newly-constructed lower Manhattan headquarters
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The Wall Street Journal
Goldman Sachs's New Palace Creates Princes, Serfs
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RE mortgage Interest rates WILL tumble after gov't charges Goldman


[mEDITate-OR:
not see why this is very good news for U.S.

Not only does Goldman Sacks have to pay, dearly, for their excessive greed...
regulatorily, economically, politically and legally...
now, and later in a flood of lawsuits...
but, this will drive home RE mortgage rates back down below 5%.

Bond prices were bid up, yield was driven back down.

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Interest rates tumble after gov't charges Goldman
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Goldman case likely to unleash torrent of lawsuits
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Mortgage rates drop, but still above 5 percent + Foreclosure rates surge, biggest jump in 5 years


[mEDITate-OR:
not see the real meaning of these stories...
bcuz it may not be what they want you to think it is...
 
First article is understood ONLY if you remember that a few weeks ago the interest on TBills jumped up a lot...
and that drove up RE interest rates.
However two week ago TBills interest rate dropped, a lot.
so that while RE interest rates were reported to U.S. LAST week as going up, we KNEW that they would drop THIS week.
They went up bcuz the FED has stopped buying FMae&FMac Securities and nobody knew, precisely, what would happen.
What DID happen was that other U.S. investors stepped up and bought them, driving the price up & yield down.
 
The second article is about The Foreclosure Surprise...
while nobody predicted the size of the surge, we knew that it HAD to happen, sometime.
there were too many reported PRE-foreclosures..., and too few modifications.
IF the lenders/banks are now going to purge their bad RE loans, we are in for one Hell of a ride.
This year is the re-set year for pay-option ARMS, where nobody paid even the interest accruing.
More foreclosures, more strategic defaults, more short sales..., more homes needing a home.
Ugly.
 
The third article is a mixed message.
Single family homes starts declined, again.
Multi-family units surged almost as much as they declined last month - a wash.

The fourth article is about an interesting "rural" home program...
that is ending, due to no mo money.
Sad, but small towns need this, almost as badly as they need high speed net access.

==========    stories, with emphasis added

Mortgage rates drop, but still above 5 percent
30-year fixed loan is now 5.07 percent, down from 5.21 percent last week


Rates for long-term mortgages dropped this week but still remained above 5 percent, Freddie Mac said Thursday.

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Foreclosure rates surge, biggest jump in 5 years
‘On pace to see more than 1 million bank repossessions this year’


A record number of U.S. homes were lost to foreclosure in the first three months of this year. RealtyTrac Inc. said Thursday.

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Housing starts hit highest level since Nov. 2008
The Commerce Department says housing starts rose 1.6 percent

Housing construction posted a better-than-expected performance in March, rising to the highest level in 16 months.
 
Groundbreaking for single-family homes slipped 0.9 percent last month to an annual rate of 531,000 units
after rising 5.7 percent in February.
Starts for the volatile multifamily segment surged 18.8 percent to a 95,000-unit annual pace
after falling 21.6 percent the prior month.
 
New building permits, which give a sense of future home construction, jumped 7.5 percent to a 685,000-unit pace last month — the highest level since October 2008
Permits were up 34.1 percent from March 2009, the biggest year-on-year gain since February 1992.
New home completions fell 3.1 percent to a record low 656,000 units.
The inventory of total houses under construction dropped 1.4 percent to an all-time low of 489,000 units in March
the total number of units authorized but not yet started soared 7.5 percent to 103,200 units — the highest level since June.
 
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Program for rural homebuyers is nearly broke
Agriculture Dept. loans aim to keep buyers from moving to bigger cities
A federal loan program that has helped hundreds of thousands of Americans buy homes in rural areas is about to run out of money, potentially crippling the real estate market in small communities.
 
USDA's Rural Development program provides 30-year fixed-rate mortgages at market rates.
Buyers do not have to put any money down, unlike loans from the better known Federal Housing Administration, which requires a down payment of 3.5 percent.
And unlike FHA loans, there are no monthly mortgage insurance premiums in the USDA program.
 
To be eligible, people must be in communities with fewer than 20,000 residents and live outside metropolitan areas.
 
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