The Housing Bubble

Post-recession America may be saddled with high unemployment even after good times finally return.

Hundreds of thousands of jobs have vanished forever in industries such as auto manufacturing and financial services. Millions of people who were fired or laid off will find it harder to get hired again and for years [perhaps the rest of their lives] may have to accept lower earnings than they enjoyed before the slump.

Today’s Dilbert: The pointy-haired boss’s secretary tells him off; “I live in a rented trailer and all of my money is in my checking account. Your investments are worthless and your mortgage is underwater. My net worth is higher than yours now.” Boss grimaces. “I guess promiscuity and a G.E.D. was a pretty good strategy for me after all. Boss crushes the papers he’s holding.

Obama: Better do the deal, boys, or I’m gonna sic David Gregory on you.

http://www.businessinsider.com/white-house-directly-threatened-perella-weinberg-over-chrysler-2009-5

So I guess Hank Paulson wasn’t the only one to do a little strong-arming.

‘Great Recession’ Will Redefine Full Employment as Jobs Vanish
By Matthew Benjamin and Rich Miller

May 4 (Bloomberg) — Post-recession America may be saddled with high unemployment even after good times finally return.

Hundreds of thousands of jobs have vanished forever in industries such as auto manufacturing and financial services. Millions of people who were fired or laid off will find it harder to get hired again and for years may have to accept lower earnings than they enjoyed before the slump.

This restructuring — in what former Federal Reserve Chairman Paul Volcker calls “the Great Recession” — is causing some economists to reconsider what might be the “natural” rate of unemployment: a level that neither accelerates nor decelerates inflation. This state of equilibrium is often described as “full” employment.

Fallout from the recession implies a “markedly higher” natural rate of unemployment, says Edmund Phelps, a professor at Columbia University in New York and winner of the 2006 Nobel Prize in economics. “It was 5.5 percent; maybe it will be 6.5 percent, maybe 7 percent.”

That has implications for policy makers as well as workers. The Obama administration and the Federal Reserve are counting on the jobless rate to fall to a medium-term equilibrium of about 5 percent as the economy recovers. A natural rate significantly above that would drive up the annual budget deficit — which will top $1 trillion for the first time this year — by reducing tax revenue and pushing up spending on unemployment benefits.

A higher rate would also require the Fed to make a choice: Accept an economy with more Americans permanently out of work, or try to boost employment at the risk of heating up inflation.

Unemployment Report

The government may report May 8 that the jobless rate jumped to 8.9 percent in April, the highest since 1983, from 8.5 percent in March, according to economists surveyed by Bloomberg.

Laurence Ball, an economics professor at Johns Hopkins University in Baltimore, says unemployment may peak at 10 percent, and “it will be a long time before we see 5 percent” again.

The more time workers spend without a job, the less attractive they become to potential employers, Ball says. That in itself helps keep the unemployment rate elevated.

“If you’re unemployed” for an extended period, “you’re not keeping up with new technology,” he says. “You become discouraged and you change your lifestyle.”

A burst of productivity growth starting in the mid 1990s helped lower the natural rate of unemployment to around 5 percent from 6 percent, as profit-flush companies took on more workers. Now the fear is that will be reversed as industries downsize.

Obama seeks tax changes for U.S. firms overseas…

WASHINGTON (Reuters) - President Barack Obama on Monday will propose changing provisions in the tax code that he says encourage U.S. companies to move jobs overseas, as part of a broader package aimed at saving $210 billion over 10 years.

U.S. officials said that in an announcement planned for 11:05 EDT (1505 GMT), Obama will seek to follow through on a campaign promise to change the tax treatment of American firms with overseas operations.

That portion of his plan — opposed by such firms as Pfizer Inc and Oracle Corp — would raise more than $100 billion in revenue over the next decade.

In an echo of a line he used often on the campaign trail last year, Obama vowed in a February address to the U.S. Congress to make the tax code more fair by “finally ending the tax breaks for corporations that ship our jobs overseas.”

Currently, U.S. firms are allowed to defer paying taxes on profits earned overseas if they plow those profits back into their foreign subsidiaries.

Critics say those rules encourage businesses to bolster their foreign operations instead of creating jobs at home.

But an array of firms signed onto a letter to congressional leaders in March opposing changes to the so-called deferral provision, saying they would make U.S. businesses less competitive.

The letter was signed by 200 companies and trade associations, including Pfizer, Oracle, Microsoft Corp Johnson & Johnson and General Electric Co as well as the Business Roundtable and the U.S. Chamber of Commerce.

The letter said the firms would not be on a level playing field with international rivals, many of which are not required to pay taxes at home on overseas entities.

Senior U.S. officials who described Obama’s plans said they were balanced and would not put excessive burdens on firms.

Ex-owners and renters getting aggressive to resist getting kicked out.

Lots of interesting stuff in that article.

…
Steve Whetzel has increasingly been dealing with the first group. He runs KNK Home Preservation in Warrenton, a company banks hire to clear out newly foreclosed homes. It was never unusual to find rotting food, broken appliances and less-than-sightly bathrooms left behind by disgruntled residents.

But in recent weeks, Whetzel said, he’s responded to cases in which homeowners have threatened to harm themselves or others. About six weeks ago, at a house north of Frederick, a man threatened to kill members of Whetzel’s crew, and county SWAT team members were called in. In a case outside Baltimore, a father tried to commit suicide by overdosing on pills as he was being evicted. His two children were still inside the house.
…

http://www.zoyzoy.com/realestate/caseshiller.php

A quick and easy charting of shack prices… CS and OFHEO. A cool bubble video too on menu bar too.

The government-run mortgage financiers can refinance loans up to 105 per cent of a property’s value. WHEN WILL THESE IDIOTS LEARN

US mortgage cuts offer spending boost
By Saskia Scholtes and Chrystia Freeland in New York
Published: May 3 2009 22:36 | Last updated: May 3 2009 22:36
US homeowners could save close to $18bn (€13.5bn, £12bn) on their mortgage repayments this year as record low interest rates allow millions of borrowers to switch to cheaper home loans.
Those people that took advantage of cheaper borrowing costs in the first quarter saved about $160 a month on a $200,000 loan, Frank Nothaft, chief economist at Freddie Mac said.
“In aggregate, this adds up to about $2.5bn in extra spending cash in the pockets of those homeowners to spend over the coming year.”
With the refinancing trends expected to be boosted by the government’s plans to help more borrowers to qualify for mortgage renegotiations, this year’s savings for homeowners could reach $18bn.
The sum would add firepower to the existing stimulus and underpin US personal consumption, which totalled $10,000bn in 2008.
Wilbur Ross, the billionaire investor, said in an interview with the Financial Times that the positive effects of giving consumers additional disposable income were being felt.
“It’s already having hundreds of billions of dollars of impact. The consumer is 70 per cent or thereabouts of the economy, so those are high-velocity dollars,” he said.
The savings are based on refinancing loans that qualify for backing by Freddie Mac and rival Fannie Mae with a 5 per cent interest rate. Few borrowers with non-qualifying loans – either because their mortgages are too large or too risky – will benefit because interest rates on this debt remains high.
Under the government programme, borrowers who have mortgages owned by Fannie Mae or Freddie Mac can refinance without additional mortgage insurance costs, even if the loan is more than 80 per cent of a home’s value.
The government-run mortgage financiers can refinance loans up to 105 per cent of a property’s value.
But John Ryding, chief economist at RDQ Economics, warned that the impact of the savings on the economy might not be as immediate as some hope.
It can take up to a year for borrowers to recoup the cost of refinancing fees from their savings, while some of the benefit will also be offset by a higher tax bill, he said.
Mortgage interest payments are tax deductible. Similarly, the benefit of savings for consumers could be offset by the lower investment income for investors in mortgage bonds.

http://www.ft.com/cms/s/0/d586a694-3828-11de-9211-00144feabdc0.html

Will the Boston Globe shut down?

http://www.washingtonpost.com/wp-dyn/content/article/2009/05/04/AR2009050400756.html

Troubled banks must be allowed a way to fail
By Thomas Hoenig
Published: May 3 2009 19:01 | Last updated: May 3 2009 19:01

When the financial crisis began to unfold in 2007, US policymakers reacted quickly out of fear that rapidly evolving events would lead to a global economic collapse. In my view, the policy response to this point has been ad hoc, resulting in inequitable outcomes among firms, creditors, and investors. Despite taking a number of actions to stabilise markets and institutions, uncertainty continues and markets remain stressed.
I believe there is an alternative method for addressing this crisis that deals more effectively with the issues we currently face while also considering the long-run consequences of those actions: the implementation of a systematic plan to resolve large, problem financial institutions.
In recent weeks, I have outlined such a resolution framework for dealing with these large, systemically important institutions. Boiled down to its simplest elements, the plan would require those firms seeking government assistance to make the taxpayer senior to all shareholders, with the government determining the circumstances for managers and directors. These firms would be operated by outside individuals with no conflicts involving either the firm or its competitors.
Non-viable institutions would be allowed to fail and be placed into a negotiated conservatorship or a bridge institution, with the bad assets liquidated while the remainder of the firm is operated under new management and re-privatised as soon as is feasible. This plan is similar to what was done in Sweden in the 1990s and in the US with the failure of Continental Illinois in the 1980s.
This plan has many advantages, including that management and shareholders bear the costs for their actions before taxpayer funds are committed. This process also is equitable across all firms; is similar to what is currently done with smaller banks; and provides a definitive process that should reduce market uncertainty. These are important reasons to implement this kind of resolution process.
In contrast to this suggested approach, the current policy raises a host of issues:
● Certain companies have not been allowed to fail and, as a result, the moral hazard problem has substantially worsened. Capitalism is a process of failure and renewal, and a “too big to fail” policy undermines this renewal and makes the financial system and our economy less efficient.
● So-called “too big to fail” firms have been given a competitive advantage and, rather than being held accountable for their actions, they have actually been subsidised in becoming more economically and politically powerful.
● The US government has poured billions of dollars into these firms without a defined resolution process, adding to our national debt. While there will be some repayment, there also will be losses. The longer resolution is postponed, the greater the losses and the larger the debt burden.
● As these institutions are under repair, the Federal Reserve is making loans directly to specific sectors of the economy, causing the Fed to allocate credit and take on a fiscal as well as a monetary policy role. This is reflected in the fact that its balance sheet continues to swell, which may compromise the independence of the Federal Reserve and make it more difficult to contain inflation in the years to come.
● Failing effectively to resolve these non-viable firms has long-term consequences. We have entrenched these even larger, systemically important, “too big to fail” institutions into the economic system, assuring that past mistakes will be repeated.
Certainly, the approach I suggest for resolving these large firms also is not without substantial cost, but it looks to both the short and long run.
A systematic approach would reduce the uncertainty that has paralysed financial markets; the cost is more measurable and therefre manageable; and there will be fewer adverse consequences compared to the path we are on now.
Because we still have far to go in this crisis, there remains time to define a clear process for resolving large institutional failure. Without one, the consequences will involve a series of short-term events and far more uncertainty for the global economy in the long run.
While I agree that central banks must sometimes take actions affecting the short run, they must keep the long run in focus or risk failing their mission.
The writer is president of the Federal Reserve Bank of Kansas City

http://www.ft.com/cms/s/0/46e2f784-380b-11de-9211-00144feabdc0.html

Hi All. I just returned from my trip with my sister to Grand Rapids. We closed on a $35,000 house for our other sister on Thursday and spent all day Friday buying stuff and employing workmen. Lowes and Home Depot employees were very helpful, and plumbers, etc came over to do work on short notice. Everybody was grateful for the work. It will be a pain to maintain this house over the years, but it’s the perfect solution for a person who has a hard time getting along with landlords, etc. I talked to her last night and she is having a great time painting and cleaning. This week she’ll start the garden.

Haven’t visited the blog for a while but felt I had to come back for a little reassurance. What’s with people still buying overpriced homes in LA in this environment? Two doors away from a friend’s house in Carthay Place, a duplex sold in about two months. Last price was $1.185 million or so. They had shaved off the price 100K but hey, I still don’t get it. Other acquaintances bought for over a million in Sherman Oaks. People keep going on and on abou the low interest rates, the LA Times ran a story on bidding wars in LA. Help.

Former mortgage broker finds new growth industry - painting lawns green:

http://www.latimes.com/news/la-me-spray-painted-grass2-2009may02,0,4402554.story?track=ntothtml

Anybody got any housing observations?

U.S. Home Prices May Be Lost for a Generation: John F. Wasik
Commentary by John F. Wasik

May 4 (Bloomberg) — We might be looking at a lost generation for U.S. home values.

Far too many analysts are calling a bottom to the housing market after home prices in 20 metropolitan areas declined at a slower pace in February, according to the Standard & Poor’s/Case-Shiller Index.

Don’t be blinded by the glint of optimism in headlines about rising consumer confidence and slowing price declines. Demographic and market realities tell a more sobering story.

You won’t see a widespread housing rebound in an economy in which 600,000 jobs a month are lost and foreclosures ravage the most overleveraged areas. These are just the visible barriers to a recovery.

Mortgage lending has also been an unusually tightfisted process of late. Lenders are demanding a 20 percent deposit for home purchases, and want impeccable credit ratings. About 45 percent of U.S. banks surveyed by the Federal Reserve said they had “tightened their lending standards on prime mortgages.” I suspect that number is much higher.

Then there’s the reality that the market is glutted with homes. A record 19 million homes stood empty at the end of 2008.

What you can’t see in the most recent housing numbers is the least-visible driver of home prices today: demographics.

Baby Boomers

The baby-boomer generation, the largest in American history, will be buying fewer single-family homes.

The U.S. is experiencing a 40-year generational peak in consumer spending, one that will lead to “the first and last Depression of our lifetimes,” author Harry Dent predicts in his book “The Great Depression Ahead” (Free Press, 2008).

Although we may not be headed for a 1930s-style Depression, there’s plenty of evidence to suggest that boomers are dumping their four- and five-bedroom suburban homes for two- and three- bedroom condominiums.

It’s also unlikely that the “Generation X,” born between 1965 and 1976 (or more derisively called “baby busters”), will bid up home prices. They are only 44 million strong, not as wealthy and even more in debt from college loans.

The baby boomers are reorganizing their finances after a rocky decade in stocks. They aren’t buying as many second homes and vacation properties in warmer climates.

This won’t effect Haliburton’s Dubai Corporate headquarters remodel of their boardroom with Thomas Kinkade themed paintings will it?

That Opie™ …cute little feller.

“In 2004, U.S.-based multinational corporations paid about $16 billion of U.S. tax while earning about $700 billion offshore, or an effective tax rate of about 2.3 percent, an administration official said. The top marginal tax rate for U.S. companies is 35 percent.”

“Obama’s plan will be “surprising and cause a lot of pain” to U.S. companies, said Pamela Olson, a former top tax policy official in President George W. Bush’s Treasury Department. Many companies structured their international operations over the last decade based on rules such as check-the-box.”

‘Wiped Out’

“Everything they’ve done is going to get wiped out,” Olson said. The Obama Treasury Department could have made most of the changes administratively, she said. By making it a legislative proposal, the new administration can count any revenue that results from the policy change in its budget.”

Obama Wants to End Tax Rules That Save Companies $190 Billion:

By Ryan J. Donmoyer May 4 (Bloomberg)

Buffet just said he is going to sell something to get the carry back and recoup $650,000,000 in taxes that they had paid. What happened to his secretary paying more income tax then he did. I know that the six-hundred and fifty million is not income tax to Warren Buffet, but for someone who made such a stand on how unfair the tax system was, he sure knows how to play it.

Hey Mr. Bear, wake up from your rip van winkle slumber…Lennar is running ads that say:

“If you snooze…you lose” Buy Today! It’s now or never!;-)

Their Irvine CA promo starts with homes in “low” $1,000,000.00’s

The next bubble is inflating before our eyes: The equities markets.

http://tinyurl.com/dh5otn

“U.S. March pending home sales index up 3.2%”

More BS from National Association of Losers.

Fiat has experience with other countries.

The VAZ-2101 is a compact (”small class” in Soviet classification) car, sedan, produced by AvtoVAZ and introduced in 1970. Better known as the Lada outside of its native Russia, it was a localised version of the Fiat 124 tailored for the Soviet and Eastern European market.

Known as the Zhiguli within the Soviet Union, the main differences between the VAZ-2101 and the Fiat 124 are the use of thicker gauge steel for the bodyshell, an overhead camshaft engine (in place of the original Fiat OHV unit), and the use of aluminium drum brakes on the rear wheels in place of disc brakes. Early versions of the car featured a starting handle for cranking the engine manually should the battery go flat in Siberian winter conditions, and an auxiliary fuel pump.

AvtoVAZ were forbidden from selling the car in competing markets alongside Fiat 124; however exports to Western European nations began in 1974 when the 124 was discontinued in favour of Fiat’s newer 131 Mirafiori model. The 2101 was sold in export markets as the Lada 1200 and Lada 1300 until 1983, when it was replaced by the facelifted VAZ-2105 model - badged as Lada Riva in selected European countries.

No worries mate. Just “reinflate” the California housing bubble by utilizing the latest in a newly available mortgage product from any bank or savings and loan near you — “The California Twister.” **

** “Import” a Japanese-style “three-generation, 100 year mortgage” — but with an added “California twist.” Simply “reengineer it” into a “four-generation, 120 year mortgage” so anyone can continue to pay their monthly mortgage even on outrageously overpriced homes in California (including their children, grandchildren, and great grandchildren — let’s keep it all in the family don’t you know. “The family that pays together, stays together” - don’t you think?) For the most highly leveraged and stubborn cases, simply employ the “California Twister-II” which is a “five-generation, 150 year”mortgage.” See, that wasn’t so difficult — now was it?

My wife is 14 weeks along with number two. If any of you have spouses demanding a house for offspring, have them post and I can talk them down

Initial post that will be used to test j’s new formatting and quoting features in his Firefox plugin for this blog.

Amex must of found a whole bunch of new people with jobs to sign up for their $75.00 per year green card! From $9.71…to…$25.50

“Not a single metro area in the nation was seen to be exiting the recession.”
http://www.msnbc.msn.com/id/30216797/

“towns that put all their eggs in one basket, ie: recreation vehicles- Elkhart Indiana”

From behind “The Orange Curtain”:

Hey Crissy Cox, take some of that “hard earned” SEC salary money $$$$ and drive your Hummer over asap, redeem that free $50.00 gift card!

Another Fascist Island store to close:
April 23rd, 2009 O.C. Register…posted by Hang Nguyen, retail reporter:

The Chip & Pepper store at Fascist Island in Newport Beach plans to close this Sunday, said Carol McNairy, director of retail for Chip & Pepper.

“Everything at the O.C. store is marked off by 75 percent. The closure will leave only one brick-and-mortar Chip & Pepper store in New York, she said.”

“In 2003, they began their fashion renaissance in America by launching a high-end denim line that has become a cult favorite among celebrities and hipsters.

The line’s rapid popularity has expanded to include maternity, kids, knitwear, hats, leathergoods and sportswear. The brand also includes Chip & Pepper University, a knit line incorporating vintage and original logos from more than 75 universities around the nation.”

Fascist Island to give $50 gift card with purchase:

Customers who purchase $250 or more on Thursday, May 7 from 10 a.m. to 9 p.m. in any store or restaurant at Fascist Island in Newport Beach can redeem their receipts to receive a $50 gift card to the center.

Customers can redeem same-day receipts at the guest services desk in Atrium Court. There is a limit of one gift card per customer, while supplies last. Fascist Island gift card purchases are not eligible.

For more info, call the Fascist Island concierge at (949) 721-2000.

Fascist Island is owned by Irvine Company, which also offered a gift-card promotion last month at The Market Place, another shopping center it owns.

This market is un-freaking-believable. I have been officially humbled as a short, and need to get out. I really didn’t think this rally would last this long and be this strong, and have been squozen to the breaking point.

(shakes head)

Sad thing is I know for sure that now the market will tank the coming weeks.

KJ wrote:
” posed this before on this forum….I think the recession is on its last legs and will be over by the end of the year. And equities are reflecting this view.”

Wait a second.

We buy from China, they loan us the money back, we buy more from them, they loan us the money back… repeat.

The boom was created by rising housing prices that allowed consumers to borrow almost $1T a year against their houses. The flood of cheap debt also allowed companies to borrow, borrow borrow.

From 1993-2008, household income up 50% and per-household debt up 180%. Business debt up 270%.

We had about $7.5T debt (consumer and business) in 1993. Adjusting for 50% inflation and 20% population gain, we could add another $6T in debt to maintain the same debt/income ratio. We actually added $17.5T in debt. Almost tripple the rate of inflation and population growth.

The government has stepped up as the debtor of choice and is adding $1.5-$2 T in debt a year to cover for the consumers and businesses that are maxxed out and unable to take on more debt.

But, how long can that last?

Are we magically going to return to the time of people spending 110% of their income, increasing their total debt outstanding at a rate of 3x thier income increase? What are they going to use as collateral? After trillions in losses, are there really going to be lenders stepping up to loan these people even more money that they can’t pay back?

We’ve dumped trillions at the banks to help cover their losses from MBS, but what about the insurance companies, the pension funds, the bond funds???

How long before the hedge funds that have locked the doors, are forced to open the doors again and resume liquidating to cover all the redemption requests???

This is the eye of the storm between the initial losses when the government still had some power to slow the collapse, and the echo effects that will follow.

I just saw a new poll that puts the GOP approval rating in the 20’s. That is a shockingly low rating, even for the GOP. What it shows is that most of the country believe the GOP is mainly responsible for the problems we face today, and that is an accurate view. Sure, you can point to bad decisions or actions here or there by Democrats, but the truth is the GOP owned deregulation for so long, that no amount of propaganda can overcome it.

As I said a while back, once the train came off the tracks the GOP was going right back into the same wilderness it was in for 60 years after they were blamed for the first Great Depression. Some have called the GOP a cult, and I think there is some truth to that. You would think that after your policies crashed an entire planet you might reconsider your position on things like regulation, but nope. Not this crowd.

Back to the wilderness you go. I just hope the Dems don’t screw things up too badly, not that they can ever compete with the GOP in this department.

Should be an interesting 30 years of one party rule. God help us all.

Hoenig for President!

http://www.ft.com/cms/s/0/46e2f784-380b-11de-9211-00144feabdc0.html

He is the only President of a Federal Reserve Bank that is talking sense, IMHO. His recent speeches read like a break with the status quo.

—————
I believe there is an alternative method for addressing this crisis that deals more effectively with the issues we currently face while also considering the long-run consequences of those actions: the implementation of a systematic plan to resolve large, problem financial institutions.

In recent weeks, I have outlined such a resolution framework for dealing with these large, systemically important institutions. Boiled down to its simplest elements, the plan would require those firms seeking government assistance to make the taxpayer senior to all shareholders, with the government determining the circumstances for managers and directors. These firms would be operated by outside individuals with no conflicts involving either the firm or its competitors.

Non-viable institutions would be allowed to fail and be placed into a negotiated conservatorship or a bridge institution, with the bad assets liquidated while the remainder of the firm is operated under new management and re-privatised as soon as is feasible. This plan is similar to what was done in Sweden in the 1990s and in the US with the failure of Continental Illinois in the 1980s.

Souter Retiring: Ayers, Wright Downplay Rumors
by Scott Ott

(2009-05-01) — As speculation runs rampant about who President Barack Obama will pick to replace retiring Supreme Court Justice David Souter, two long-time associates of the president have downplayed rumors that their names might be on the president’s short list.

William Ayers, a Chicago educator and Jeremiah Wright, Mr. Obama’s former pastor, each denied they had been in recent contact with the White House.

“While I have been a vocal advocate of justice for years,” said Rev. Wright, “I’m enjoying my retirement, traveling around, and spreading the good news of God’s condemnation of America. I’m certainly qualified for the high court, and I already have the wardrobe, but these rumors are premature.”

Meanwhile, Mr. Ayers, who exploded onto the national scene in the 1960s and 70s, and has intimate knowledge of the legal system, said he’s “too busy preparing youth to live in the new America to mull a court appointment at this time.”

White House spokesman Robert Gibbs said it’s unlikely that the president would appoint either Mr. Ayers or Rev. Wright, “since he knows many other similarly-qualified candidates with less name recognition.”

My wife got her merit increase today… well, goes into effect July 1….

2%.

Hey, that is 2% better than I’m getting!

A larger share of banks have made it more difficult for people to obtain home mortgages over the past three months even as demand has grown, the Federal Reserve reported Monday.

The Fed’s new quarterly survey found that about 50 percent of U.S. banks tightened their lending standards on prime mortgages, up from about 45 percent in the survey issued in early February.

Meanwhile, 65 percent of banks said they tightened standards on nontraditional mortgages, such as adjustable-rate loans with multiple payment options. That was up from 50 percent in the previous survey.

Demand for nearly all types of consumer and business loans continued to weaken over the past three months, with one exception. Demand for prime mortgages registered its first increase since the Fed began to track those loans separately in April 2007.

Wages down, job insecurity up, borrowing down
Oil consumption down,

A lot of progress for the Depression this morning, I see. Let it never be said that Oz is left out of a trend. (Ben, I appreciate that this is an American blog, but thank you for your forbearance on our ‘international’ housing/economic articles too - yours is simply the widest forum I know to demonstrate that this is a *global* phenomenon.)

Once again the Sydney Morning Spin is the bearer of bad news, albeit with the requisite sunny pro-homedebtor prognosis at the end. In other news, the head cheerleader shows up a school wearing a punk mohawk…

Sydney Morning Herald
House prices fall at fastest rate for 25 years
Jessica Irvine Economics Writer
May 5, 2009

HOUSE prices are falling at their fastest pace in at least a quarter of a century and there are just half the number of job advertisements as a year ago. But a Reserve Bank board meeting in Sydney today is expected to conclude that another interest rate cut is not needed.

A survey of detached house prices by the Bureau of Statistics released yesterday found prices fell 6.7 per cent across Australia’s eight capital cities over the year ended March - the biggest fall in the survey’s 23-year history.

Sydney suffered the second largest annual price fall of 7.3 per cent, second only to Perth, where the abrupt end of the commodities boom dragged house values down 10.1 per cent.

The bureau’s results jar with two other private sector surveys which had suggested house prices began to plateau earlier this year, supported by the boosted incentives for first-home buyers. By contrast, the bureau’s survey suggested house prices sank another 2.2 per cent in the first three months of this year.

It is possible that because the bureau’s survey does not include semi-detached homes and apartments, only detached homes, it does not fully capture this first-home buyer effect.

An economist at Commonwealth Bank, James McIntyre, said house prices were likely to remain under pressure this year. “Whilst improved affordability should lead to higher prices over time, in the near-term rising unemployment and battle-scarred household wealth levels weigh on the housing market, particularly at the upper end, which is unlikely to benefit from improved sentiment amongst first-home buyers.”

Meanwhile, the task confronting Australia’s half a million job seekers gets harder by the day.

The number of job advertisements appearing each week in newspapers and on the internet fell for a 12th consecutive month to 136,770 in April, down from 273,125 at the same time last year.

ANZ’s head of Australian economics, Warren Hogan, predicted the jobless rate would climb above 8 per cent next year.

However, most economists expect the Reserve Bank will keep rates on hold when it announces its decision at 2.30pm today amid tentative signs that the pace of decline in the global economy is slowing.

Manufacturing activity in China has begun to expand again, while surveys of US consumer confidence suggest a more cheery mood has begun to prevail. The US sharemarket has regained almost a third of its losses.

Back at home, mortgage rates have already fallen to their lowest since the 1960s, bringing the total monthly saving for a family with a $400,000 variable mortgage to more than $1000 since last August.

In more good news for consumers, it appears price inflation is abating. A survey by TD Securities and the Melbourne Institute found overall prices did not rise last month. Rents fell for a second consecutive month, to be down 3 per cent. “It is clear that there has been a migration out of rental accommodation and into home ownership, especially for first-home buyers,” the senior strategist at TD Securities, Annette Beacher, said.

The stock market always goes up. Buy stocks now, or get priced out forever.

Wall Street Journal

* TODAY’S MARKETS
* MAY 5, 2009

Rally Sends U.S. Stocks Into Black for the Year

By E.S. BROWNING

Hope spread among investors Monday as they drove stocks higher, sending the broad Standard & Poor’s 500-stock index into the black for the year so far.

Instead of selling stocks on expectations that some banks will be ordered to raise capital as a result of government stress tests, investors bought stocks, notably bank stocks, on optimism that the economy is nearing a low and preparing to turn up.

The S&P 500 surged 29.72 points, or 3.39%, to 907.24, its biggest point and percentage gain since April 9. Back on March 9, the S&P 500 and other major indexes were at 12-year lows. The S&P 500 has jumped 34% since then, and has poked its nose back into positive territory for the year, up 0.44%.

Stocks still are far from their levels of 19 months ago; the S&P 500 is down 42% from its record close of 1565.15 on Oct. 9, 2007. Many investors remain skeptical, and warn that markets have risen so rapidly that they are overdue for a pullback this summer.

But so many had pulled back from stocks that even a small uptick in investor sentiment — leading to a shift of a tiny amount of the hundreds of billions of dollars that investors have on the sidelines — has been enough to drive a powerful rally.

“Nobody at this time can predict whether the bottom is in,” said Jeff Montgomery, chief executive of Al Frank Asset Management in Laguna Beach, Calif. “But we have seen an emotional shift both from individual investors who do business with us and from financial advisers. Their mind-set is a combination of relief and optimism.”

To play the devil’s advocate, why can’t the government just subsidize the banks until the economy turns around later this year? In fact, I think it has already turned around — just look at the greens shoots on Wall Street sprouting up like weeds.

Wall Street Journal

* OPINION
* MAY 5, 2009

We Can’t Subsidize the Banks Forever
Government has to show it can handle major insolvencies.

By MATTHEW RICHARDSON and NOURIEL ROUBINI

The results of the government’s stress tests on banks, to be released in a few days, will not mark the beginning of the end of the financial crisis. If we are to believe the leaks, the results will show that there might be a few problems at some of the regional banks and Citigroup and Bank of America may need some more capital if things get worse. But the overall message is that the sector is in pretty good shape.
[Commentary] Chad Crowe

This would be good news if it were credible. But the International Monetary Fund has just released a study of estimated losses on U.S. loans and securities. It was very bleak — $2.7 trillion, double the estimated losses of six months ago. Our estimates at RGE Monitor are even higher, at $3.6 trillion, implying that the financial system is currently near insolvency in the aggregate. With the U.S. banks and broker-dealers accounting for more than half these losses there is a huge disconnect between these estimated losses and the regulators’ conclusions.

The hope was that the stress tests would be the start of a process that would lead to a cleansing of the financial system. But using a market-based scenario in the stress tests would have given worse results than the adverse scenario chosen by the regulators. For example, the first quarter’s unemployment rate of 8.1% is higher than the regulators’ “worst case” scenario of 7.9% for this same period. At the rate of job losses in the U.S. today, we will surpass a 10.3% unemployment rate this year — the stress test’s worst possible scenario for 2010.

The stress tests’ conclusions are too optimistic about the banks’ absolute health, although their relative assessment is more precise, because consistent valuation methods were used. Still, with Thursday’s announcement of the results, it shouldn’t be a surprise when the usual suspects emerge. We fear that we are back to bailout purgatory, for lack of a better term. Here are some suggestions for how to extricate ourselves.

Wall Street Journal

* MAY 5, 2009

Encouraging Signs Seen in Housing, Construction

By KELLY EVANS

Increases in housing-market activity and construction spending were the latest signs of a brighter outlook for the U.S. economy.

Pending sales of existing homes rose in March for the second-straight month, the National Association of Realtors said Monday. It marked the first back-to-back gains in that index in nearly a year, and the latest hopeful sign for the beleaguered housing market. Pending sales serve as a leading gauge, as they are based on contracts signed but not yet closed, a process that typically takes a month or two.

Activity was strongest in the South and West in March, the Realtors’ group said, as the index overall increased 3.2 points from February to a level of 84.6. Sales of new and existing homes have fallen sharply in the past year, but have shown signs of life in recent months as falling prices and low mortgage rates help to make homes more affordable.

Meanwhile, the Commerce Department said Monday that spending on construction projects rose in March by 0.3% to $969 billion, the first gain in six months. Spending was down on residential construction but strong for nonresidential projects, particularly power plants and government structures, possibly reflecting a jump-start from the onset of the government’s distribution of $787 billion of stimulus funds.

If the Fed ends up getting audited, is there any chance stock market manipulation activities will be brought to see the light of day?