On the heels of last weeks delightfully mixed bag of employment data (job creation looks like it may be out of reverse and into neutral) we get some new housing data. There the signals are more disquieting, if expected (at least by me.) The housing market may now be heading back down.
The interesting aspect of this is that so many people see this as unlikely. So let us list some reasons why this is a real risk, if probably not as rapid a fall as we saw previously.
- Prices are still above a long term stable level. This could be taken care of by stagnating prices and inflation, but there is little inflation right now.
- The price to rent ratio is out of whack, and rents are still falling, in fact, accelerating. Little wonder, since there is an 11% vacancy rate.
- There are 231,000 newly built housing units sitting vacant.
- There are 3.29 million vacant homes for sale.
- Then there is the shadow inventory of homes that are off the market for various reasons (such as foreclosed homes banks are unwilling to sell yet to avoid realizing losses.)
- Defaults are accelerating, with the largest source of pain now prime loans. As I have maintained for a long time this is not, and never has been, a subprime problem. Subprime was just what collapsed first being the weakest link in the housing market.
- That acceleration is unlikely to slow any time soon as not only are workers still losing jobs and few new potential owners getting jobs, but the length of unemployment is unprecedented in the post war era. The longer a worker is unemployed, the more likely they are to default.
- Lending is still tight for many mortgage seekers.
- We are forming households at a reduced rate, thus lessening demand for new homes.
- More than 20% of homeowners are currently underwater. Nothing correlates more closely with default rates than negative equity.
- Worst of all, we need to revisit an old topic of mine that is no longer a longer term risk, but right around the corner. The likely huge wave of defaults represented by Alt-A and Option Arm Loans about to reset. Defaults have followed with a lag each wave of resets, and the largest wave, from the era with the worst underwriting is about to hit. Notice, subprime is receding. With the system as fragile as it is now, what will this wave bring on?
I always am nervous about calling anything a prediction, but further housing deterioration is a very grave possibility.
Needless to say, this has led to further problems at Fannie, Freddie with more to come. Not that you should be concerned about that, the mission has changed. On their way to probably 400 billion in losses (I remember when I was an alarmist claiming that the losses would be far more than the 20-30 million the government was claiming, probably 200 billion. It turns out I was a cockeyed optimist) the government has officially eliminated any limit on their exposure. Why? It seems to be so that they can take losses!
Freddie’s federal overseers nevertheless have instructed Mr. Haldeman to focus on something that isn’t likely to make the bleak balance sheet look any better: carrying out the Obama administration plan to allow defaulted borrowers to hang onto their homes.
On a recent afternoon, employees at Freddie’s headquarters here peppered Mr. Haldeman with concerns about the company’s future. He responded that they were “fortunate” to have such a clear mission—the government’s foreclosure-prevention drive. “We’re doing what’s best for the country,” he told them.
FT Alphaville is certainly in the skeptical camp referred to by Ms Burns, and we were not reassured when the housing agency released its December monthly report on Tuesday.
According to the report, the default rate in the FHA’s single-family portfolio hit 9.12 per cent in the fourth quarter of 2009, compared with 6.82 per cent in the same period a year prior.
In absolute terms, that means the number single-family mortgages insured by the FHA and in default reached 531,671 in the fourth quarter of 2009. That’s a 66 per cent increase versus the same period in 2008.
The agency is being hit hardest by the 2007 and 2008 mortgage vintages; the performance of these loans is so dismal the FHA expects to have to pay claims on at least one out of every four loans made in those years.
Cross Posted at: The View from the Bluff
Scott Brown wins in Massachusetts and already those rowdy Republicans are filibustering. Now that they have that 41st vote, by gosh they are committed to saying no to everything, to include a “routine” nomination of some poor inconsequential slob (lead counsel for the SEIU) to a nothing job (National Labor Relations Board) where his power is limited (has indicated he’d find a way to implement “card check” without Congressional approval).
That’s what you’d believe if you listened to the left today. Craig (let’s unilaterally expand the bureaucratic powers of the NLRB) Becker’s nomination didn’t garner the 60 votes necessary to pass and thus it’s the Republicans fault. The vote?
But wait, you say, that’s only 85. Aren’t there 100 Senators? Well yes. But 15 didn’t vote.
Really? And now many of those were Republican?
I’m glad you asked. 10 were Republican.
So, obviously then 5 were Democrats.
Well 4 Democrats and a Socialist Independent. And had those 5 voted “yea”, the Democrats would have had 57.
Uh huh. So were all those who voted “nay” Republicans?
Well, no. 2 were Democrats.
So let me get this straight – if every Democrat and “Independent” had voted “yea” yesterday, they’d have had 59 votes, correct?
But they didn’t. Two Democrats voted “nay”.
And 31 Republicans voted “nay”.
So with 10 Republicans not voting, how are we sure the Republicans “filibustered” this vote? Were they just assumed to be a nay vote? And isn’t it true that even if the Democrats had retained their 60 vote filibuster proof majority it appears only 58 would have voted “yea” on this nomination?
UPDATE: The Hill identifies what happened yesterday for what it really was – the result of a “hold”:
On Tuesday, Republicans successfully blocked the nomination of Craig Becker to the National Labor Relations Board by using a hold, which is similar to a filibuster in that it requires that 60 senators vote to break it.
Remember, it’s “like a filibuster”, but not a filibuster. Regardless note who is on the blame line. However, the same argument applies. Even with 60 votes it appears the Dems would have only been able to muster 58. As a commenter said, it was a bi-partisan rejection.
In another development, it appears the White House plans on using the filibuster as a campaign issue. That whine is sure to garner tons of sympathy and votes. Especially among the majority who think the country is headed in the wrong direction and the 75% who are angry at government.
Lastly, John Cornyn makes the appropriate points about the filibuster on of all places, Twitter:
Cornyn: RT @thenote: re: filibuster. Bipartisan support for protecting minority rights. What goes around comes around.
Indeed (and Republicans will surely see it come around again to the benefit of Democrats – we call that gridlock and we find it to be good). And good luck trying to get it changed anytime soon – to do so would take a 2/3rds vote (67).
Especially in cases like this. Mark Knoller nails it:
When a sitting president calls for bipartisanship by the opposition – he really means surrender. And if they block his proposals, its “obstinacy” and not political views they hold as strongly as he holds his.
Bingo. Spot on. So why, again, are the Republicans agreeing to this televised “bi-partisan” health care summit?
“At this late date, it is hard to see how bipartisanship is going to occur,” said Ron Pollack, the executive director of the healthcare reform activism group Families USA. “Quite frankly, I don’t understand how this dialogue is going to move the process forward other than by demonstrating that the opposition only cares to derail reform.”
Liberals see the summit as a chance for Obama to be seen responding directly to Republican critiques and for him to critique their ideas. “It isn’t going to change the prospects of passing reform,” said Richard Kirsh, national campaign manager of Healthcare for America Now, a union-affiliated activism organization. “It’ll be one more chance for people maybe to understand that Republicans have no ideas to actually solve the healthcare crisis.”
That last line is it’s purpose and, if it is anything like the performance at the Republican retreat, that will be the outcome. With the president saying he won’t reset the process or trash the present version of the bill, it should be obvious that this isn’t really about bi-partisanship or any desire to include the GOP or its ideas. It is a plan to embarrass them publicly and gain political points.
House Republicans are fresh from an encounter with the president at their retreat in Baltimore last month, where he garnered rave reviews for his performance taking questions from GOP lawmakers on live television.
“It may be that the president came off looking pretty good during the Republican retreat and maybe they think there is a political gain to be had from this. My side needs to plan very carefully for this,” said Rep. Michael Burgess (R-Texas). “It’s a press event, not a policy event.”
Of course it is. So again, why has the GOP agreed to participate?
And, of course, the irony is that a process which has been entirely closed to the public, after a campaign promise of transparency, is now suddenly thrown open to the cameras? Yeah, no reason to be suspicious about that, is there?
The Republicans: Oz’s scarecrow of politics.
Has anyone ever considered the fact that so much debt and borrowing is a national security problem?
“From 1789 through 2008, the U.S. government borrowed a total of $5.8 trillion. In 2009, the federal budget deficit exceeded $1.4 trillion. The administration now expects the 2010 deficit to break that record, topping $1.6 trillion. And in 2011, it would only fall to about $1.3 trillion. Thus, in just three years, the debt will have jumped an astonishing $4.2 trillion.” – James Capretta, a Fellow at the Ethics and Public Policy Center
Those to whom we own money – especially as much as we do – hold some pretty powerful leverage. The Chinese military has been stomping around all week urging their government to use it. They want China to sell some US bonds to deliver a little “economic punch” to get our attention, apparently.
“Bush made me do it” won’t work when piling up this much debt. The GOP’s ready-made economic and national security issue is found within the quote. That assumes they don’t just placidly go along with the mammoth increase in the debt. And that’s never a safe assumption.
I’m sure the politicians who wrote, didn’t read and passed the $787 “Stimulus” bill would tell you they never intended for your hard earned tax dollars to “stimulate” foreign manufacturers. But in the field of wind energy, that’s precisely what has happened.
Nearly $2 billion in money from the American Recovery and Reinvestment Act has been spent on wind power, funding the creation of enough new wind farms to power 2.4 million homes over the past year. But the study found that nearly 80 percent of that money has gone to foreign manufacturers of wind turbines.
“Most of the jobs are going overseas,” said Russ Choma at the Investigative Reporting Workshop. He analyzed which foreign firms had accepted the most stimulus money. “According to our estimates, about 6,000 jobs have been created overseas, and maybe a couple hundred have been created in the U.S.”
In fact, the American Wind Energy Association has reported a drop in U.S. wind manufacturing jobs last year. Again, our central planners have screwed up. And what do they have to say? Well let’s hear from one of the more vocal ones who usually never misses a chance to tell everyone how well he does his job:
Sen. Chuck Schumer, D-N.Y., called the flow of money to foreign companies an outrage, because the stimulus, he said, was intended to create jobs inside the United States.
“This is one of those stories in Washington that when you tell people five miles outside the Beltway, or anywhere else in America, they cannot believe it,” Schumer told ABC News, “It makes people lose faith in government, and it frankly infuriates me.”
Yeah – like this is the first time the results of actions by Schumer and his colleagues has caused people to “lose faith” in government. Seen the polls lately Chuckie?
Meanwhile the administration is engaged in pure and unadulterated lying about the subject:
Matt Rogers, the senior adviser to the Secretary of Energy for the Recovery Act, denied there was a problem.
“The recovery act is creating jobs in the U.S. for American workers,” said Rogers, “That is what the recovery act is about, that is what it is doing. Every dollar from the recovery act is going to create jobs for the American workers here in the U.S.”
Really Mr. Rogers? Then explain this:
Iberdrola, one of the largest operators of renewable energy worldwide, is based in Spain and has received the most U.S. stimulus dollars — $577 million. It buys some of its turbines from another Spanish manufacturer, Gamesa, which has a U.S. connection. Gamesa has two facilities to manufacture turbine blades in Pennsylvania, but the company said the market forced it to temporarily lay off nearly 100 workers.
Half a billion dollars plus to a foreign manufacturer and the net result is 100 US workers end up being layed off.
Your tax dollars at work, spent by an inept and out-of-touch Congress and administered by a clueless administration who will tell you with a straight face that they’re “creating and saving” jobs when the facts say otherwise. The same administration which is now threatening increased taxes for US companies with overseas operations is handing out borrowed money in the billions to wholly owned foreign corporations.
Now, with this new “jobs bill” they’re going to want more money (anywhere from $85 to $150 billion) when only a 1/3 of the previous “stimulus” has actually been spent, and, as indicated above, not very well. Naturally, the GOP is making noises about supporting the latest effort.
And they wonder why there are Tea Parties.
The QOTD for today actually comes to us from a NY Times editorial in 2005 which clearly states their understanding of the job of an opposition party:
Mr. Bush has reacted by railing against Democrats for obstruction — as if Democrats are duty-bound to breathe life into his agenda and, even sillier, as if opposing a plan that the people do not want is an illegitimate tactic for an opposition party.
Why I believe that is exactly the point the right is now arguing. As witnessed by the editorial, the Democrats, lefty blogs and much of the media thought it was fair play in 2005. Take heed, Republicans and don’t end up breathing life into a corpse. The Democrats didn’t apologize for killing Social Security reform. And it obviously didn’t hurt them electorally.
Question: did killing SS reform in 2005 make America “ungovernable?”
More importantly, did that mean the NY Times wanted the Bush agenda to “fail”?
Heh … Archives are a bitch, aren’t they?
Jay Cost at the Real Clear Politics blog takes on the emerging liberal canard about America suddenly becoming “ungovernable”:
Recently, some analysts have suggested that the lack of major policy breakthroughs in the last year is due to the fact that America has become ungovernable. Ezra Klein argued that it was time to reform the filibuster because the government cannot function with it intact anymore. Tom Friedman suggested that America’s “political instability” was making people abroad nervous. And Michael Cohen of Newsweek blamed “obstructionist Republicans,” “spineless Democrats,” and an “incoherent public” for the problem.
Nonsense. America is not ungovernable. Her President has simply not been up to the job.
Cost goes on to lay out, in some pretty good detail why he claims Obama hasn’t been up to the job. And I think he does a pretty thorough job. Be sure to read it all.
He also mentions something in there that I think is lost on the left and sometimes the right. While for many of us, we’ve seen government grow well beyond what we find acceptable or prudent, we actually could be worse off. And one of the reasons we’re not is the inherent design of the system of government we have. The same design many on the left now find frustrating and obstructive.
Let’s acknowledge that governing the United States of America is an extremely difficult task. Intentionally so. When designing our system, the Founders were faced with a dilemma. How to empower a vigorous government without endangering liberty or true republicanism? On the one hand, George III’s government was effective at satisfying the will of the sovereign, but that will had become tyrannical. On the other hand, the Articles of Confederation acknowledged the rights of the states, but so much so that the federal government was incapable of solving basic problems.
The solution the country ultimately settled on had five important features: checks and balances so that the branches would police one another; a large republic so that majority sentiment was fleeting and not intensely felt; a Senate where the states would be equal; enumerated congressional powers to limit the scope of governmental authority; and the Bill of Rights to offer extra protection against the government.
The end result was a government that is powerful, but not infinitely so. Additionally, it is schizophrenic. It can do great things when it is of a single mind – but quite often it is not of one mind. So, to govern, our leaders need to build a broad consensus. When there is no such consensus, the most likely outcome is that the government will do nothing.
The President’s two major initiatives – cap-and-trade and health care – have failed because there was not a broad consensus to enact them. Our system is heavily biased against such proposals. That’s a good thing.
So, as Cost points out, governing America is hard. But that’s a feature not a bug. It is intentionally hard because within that system is a means for the minority to be heard. That’s a critical feature. Because of that feature, the majority isn’t able to ram through legislation that isn’t acceptable to a broad base of the voting constituency. Health care reform and cap-and-trade represent legislation that has been found wanting in that regard. So the left, who used it like a Stradivarius when they were in the minority, now want that check eliminated in the Senate (kill the filibuster) and pine for the good old days of elite rule when, they claim, ramming through major legislation was so much easier.
No real surprise there.
Which brings me to Richard Fernandez’s take on this subject. He agrees with 99% of what Cost says, but says there is 1% where he’d differ:
The Left doesn’t want to govern, it wants to rule given the chance. It is as always willing to leave its own Big Tent behind at the decisive moment. The continual calls from the Democrat Left for Obama to ‘grow a spine’ are really coded calls to say that the moment is now; that the President must ‘’seize the day, seize the hour”. It’s not as Cost imagines, a call to compromise. It’s a call to say that the time for compromise is over. They can drop the mask; they can hoist the Jolly Roger.
I think Fernandez is right. Remember “I won” soon after Obama’s assumption of power? That bit of gloating was a moment the mask dropped.
The left would much rather rule than govern. It is certainly easier. And it tends to agree more with their authoritarian bent.
Governing is a messy and hard business in which they must listen and react to constituents. It means they actually are servants to the public. On the other hand, ruling means the elite choose what the constituency should live with since it is believed by them that the elite know best what that should be. Those they represent exist only to justify the presence of their rulers. The only difference between our left wing and that which founded the USSR is ours haven’t ever had the chance to effect the change those in Soviet Russia did. To this point, our system has mostly prevented it. But redistribution of income, more government intrusiveness and more government control are certainly the obvious desired results of most of the left’s agenda.
And, much to the frustration of the left, the system is preventing it again (with the stipulation that the GOP doesn’t find a way to cave and pass the unpopular bills cited above).
I’m not sure what Barack Obama thought he’d be able to do in terms of “ruling” instead of “governing”, but I’m sure that those who supported his “hope and change” agenda weren’t looking for a ruler. However it is clear, per Cost’s article, they’ve not gotten someone who can govern either (back to the leadership problem again). And, somewhat surprisingly, Obama doesn’t seem to understand the situation he’s put himself in as he doubles down on the leftist agenda he’s allowed liberal Congressional Democrats to craft. He, like so many deluded politicians, is convinced the problem with lack of popular support for the agenda is to be found with the message’s delivery, not with the message itself.
Cost concludes with an answer that I think fairly well destroys the “ungovernable” canard:
This remains a divided country, which creates complications in a system such as ours. The President should have recognized this, and governed with a view to building a broad coalition. But he has not.
America is not ungovernable. Barack Obama has so far failed to govern it.
Here’s to further frustration to the left and their agenda by the “ungovernable” among us.
We finally got a mixed bag on the employment front this month, a welcome change from the purely awful. However, with everyone focused on “creating” jobs I think this quick synopsis attacking the unrealistic expectations of when and where jobs will come from is well worth reading. This chart gives you an idea of how bad it really has been (click image for larger version)
Yves Smith looks at the problem of how to handle the prospect of the financially weaker members of the European Union possibly defaulting. neither the PIIGS nor their colleague states want to take the steps they may need to take. Markets however are sending a clear message, “Do Something!” The risk goes beyond the direct damage from the potential losses from holding these countries debts. European banks are already shaky, with shaky assets and still a lot more leverage than is safe. I believe Europe’s bear market is likely back on.
European banks are shaky? How provincial of me not to mention our own banks. The coming wave of defaults in the Alt-A and Prime mortgage space are not getting enough attention, Yves helps out there as well. Not only are the losses coming (pretending loans are good only works until they actually default) but the banks are in for some serious lawsuits from all kinds of parties that bought the toxic loans. First in line are Freddie and Fannie. They will still lose at least 400 billion, but they’ll take a good chunk out of the banks hide on the way down.
the phrase “credit specialists at Citi” is not exactly the kind of thing which instills enormous confidence in analysts and investors these days
I think that is an understatement. They want to sell another fancy derivative designed to remove all risk if there is a systemic crisis when, of course, those supposed to pay up will certainly have the money to do so….Right?
Please imagine me banging my head against the keyboard. And no, the response of the Citi Spokesman doesn’t make me feel any different, in fact, it makes me feel worse.
The term liquidity is the pixie dust the financial commentariat uses to obscure what is really going on. I maintain, and have throughout the last few years, that our difficulties have not been a liquidity crisis (though many who had no business exposing themselves individually to liquidity drying up for them certain had a liquidity crisis) but a solvency crisis. David Merkel points out that liquidity always exists, it just goes where the marginal credit buyer has gone. Where insolvency risk seems to be increasing, the marginal buyer can become very scarce and will provide it to areas seemingly exposed to less risk. At the end of the day it is solvency that is our problem, and until we solve that liquidity will go to those perceived to be least at risk. Right now that is the government and those they are backing. Hence a credit crunch for much of the economy.
Speaking of credit, consumer credit has now declined for 11 straight months. A record, and by a long shot. (Click image for a larger version.)
In the “no big surprise department,” and paralleling the argument I made at the time, it has now been shown that the ban on short selling during the crisis did not help support prices and damaged stock market liquidity. In the no surprise at all department the biggest complainers turned out to have fundamental problems that short sellers were pointing out accurately (much better than our regulators.) The loudest complainer of all, Overstock.com and their bizarre CEO, Patrick Byrne. The upshot, they have been cooking their books for years, just like the short sellers were claiming.
Cross posted at The View from the Bluff
The GOP has every reason to be wary of and, in fact, refuse to participate in the televised “bi-partisan” health care reform summit the President is calling for on NPR unless a number of preconditions are met. The reasons are many, but perhaps the primary one has to do with the fact that this isn’t a summit proposed to begin bi-partisan talks on reforming health care, but instead, an attempt to shame Republicans into supporting the present Senate bill passed. The president refuses to abandon it and reset the health care reform debate at the beginning.
After months of behind closed door negotiations, it’s suddenly “sunshine” time. Why in the world wouldn’t Republicans be suspicious? It’s hard not to conclude (especially after the results of the televised meeting at the GOP retreat) that this is nothing but political theater designed to show the Republicans as “obstructionists” and the “party of no”.
What the televised “summit” will likely consist of is Obama and the Democrats pushing for acceptance of the same bill now pending and the Republicans saying “no”. The desired outcome is to have them say it right there in the open on TV. Of course they’d love to have enough Republicans submit to the pressure and commit to passage as an outcome. That’s most likely not going to happen. The most likely scenario has the Republicans say “no” and Democrats claim “see we tried to include them, but they refuse” and use that as a justification for reconciliation. As Democrats see it, it would be a win-win for them with a chance to make the GOP look bad.
The House Republican leadership has sent a letter to the President in which they question all of this. You can read it here. My favorite part of the letter comes after a series of very pointed questions are put to him:
Your answers to these critical questions will help determine whether this will be a truly open, bipartisan discussion or merely an intramural exercise before Democrats attempt to jam through a job-killing health care bill that the American people can’t afford and don’t support. ‘Bipartisanship’ is not writing proposals of your own behind closed doors, then unveiling them and demanding Republican support. Bipartisan ends require bipartisan means.These questions are also designed to try and make sense of the widening gap between the President’s rhetoric on bipartisanship and the reality. We cannot help but notice that each of the President’s recent bipartisan overtures has been coupled with harsh, misleading partisan attacks. For instance, the President decries Republican ‘obstruction’ when it was Republicans who first proposed bipartisan health care talks last May.
The questions mentioned address reconciliation, starting over and other important ones. It’s a letter that makes it clear that the House GOP leadership is very suspicious of the intent of the so-called summit – and rightfully so.
Of course that doesn’t mean they won’t end up playing along. The possibility that the summit would turn into a “bash the GOP” event is something they just won’t be able to stand and will show up in an attempt to avoid that. Instead, they’ll just play into Democratic hands. If I were them, I’d instead issue a statement saying that the GOP has concluded there is no good faith attempt on the behalf of the administration or the Democrats toward bi-partisanship in the summit citing their refusal to reset the debate and include the GOP from the beginning. As a consequence the Republicans see no utility in trying to make a silk purse out of the sow’s ear of legislation they already universally oppose.
I don’t know about you but I’d respect them much more if they did that than if they show up and play along in a bit of political theater that is designed primarily to cast them in a bad light for the benefit of the opposition.
UPDATE: White House (non)response to the GOP’s letter.