Thursday, May 28, 2009

Zandar's Thought Of The Day

Despite Nate Silver sticking a fork in Dealergate, the Wingers refuse to believe in math. Between this and the Sotomayor nomination, the Wingers have completely lost any and all credibility. They might as well say "Obama is targeting white male Chrysler dealers" or something equally ridiculous, and then act all surprised when it turned out that a majority of the Chrysler franchise owners were in fact white males. It's a complete load of hogwash.

Oh, and notice that Nancy Pelosi is no longer a target.

Global No-Confidence Vote: Let Them Eat TARP

It's no surprise that the insolvent banks being propped up by taxpayer trillions continue to play games with America's money. After all, we've firmly established that the Obama administration is taking their cues from the financial industry on everything from accounting rules to the so-called "stress tests".

Ahh, but it gets even worse: Now we see the sweetheart deal the banks were given under the Geithner Plan were never acceptable in the first place...and the banks have no intention of participating in the program at all.
The Wall Street Journal reports that the Public-Private Investment Program -- better known as Geithner's Plan -- might never live at all.
The Legacy Loans Program [LLP], being crafted by the Federal Deposit Insurance Corp., [as] part of the $1 trillion Public Private Investment Program [PPIP] ... is stalling and may soon be put on hold, according to people familiar with the matter.[...]

PPIP was to be split between the FDIC program, which would buy whole loans, and one run by the Treasury Department focusing on securities. Treasury is expected to push ahead with its plan -- the larger and more substantial of the two -- and could begin purchases sometime this summer.
Given how much publicity -- and controversy -- Geithner's plan received when it was announced last March, that might seem a bit odd. But the reasons appear to be twofold. First, few investors or banks want to work with the government. And second -- and maybe more importantly -- few investors and banks now think they'll have to. The banks, in particular, are apparently enthused by their ability to raise private capital, and now think they can wait out the market turmoil and sell their toxic assets in a few years, when they'll be worth more money.
And after all, with the back door bailout of the banks through AIG, and the mark-to-market accounting rules, the banks have all the money they need to appear solvent. Why muck around with the government's overt rules and regulations -- including limits on executive pay -- when they have all the money they need to "provide an adequate cushion" from the taxpayer to begin with?

And considering the cushion was negotiated down by billions anyhow, the banks are more than willing to let bygones be bygones. They want the TARP money off the books, but they want to keep the AIG counter-payments, meaning they get free money without any strings attached. Considering they continue to hold trillions in Weapons of Financial Destruction, the banks can continue to extort the under the table cash while looking like heroes denying the need for more overt government monies.

It's a brilliant plan. Confidence restored! All it did was cost us trillions in taxpayer money that will never be repaid.

Ahh, but the last laugh may be on the banks. With the commercial real estate market falling apart and the housing market still in shambles, rapidly rising unemployment will come back to haunt banks very soon. Once again they will be in danger of going under...and then people will ask "Hey wait a minute...didn't you guys just say you were all fine back in April and May?"

Alas, this second phase of the financial collapse may scuttle everyone. So batten down the hatches, folks. The rest of 2009 is going to be a nasty reckoning.

Be prepared.

Carrying Water For The Big Dog

The normally dependable Kevin Drum experiences the spectre of doubt on the cause of the financial meltdown.
In an interview with Peter Baker, Bill Clinton says that although he regrets not regulating derivatives more strictly, he doesn't think that repealing the Glass-Steagall Act and allowing commercial banks to merge with investment banks was a big cause of our financial meltdown:
On the Glass-Steagall, I’ve really thought about that because No. 1, nonbank banking was already a major part of American life at that time. Letting banks take investment positions I don’t think had much to do with this meltdown. And the more diversified institutions in general were better able to handle what happened....I believe if you look at the blurring of the lines which already existed before that bill was signed — the bill arguably gave us a framework, at least, for which this process, which was happening anyway, could be regulated. So I don’t think that’s such a good criticism.

I think actually, if you want to make a criticism on that, it would be an indirect one; you could say that the signing of that legislation sped up what was happening anyway and maybe led some of these institutions to be bigger than they otherwise would have been and the very bigness of some of these groups caused some of this problem because the bigger something is and the newer it is the harder it is to manage.


I think this is roughly right. And frankly, even the "indirect" criticism that repeal of Glass-Steagall produced a glut of banks too big to fail seems a little hard to swallow. After all, even if Citi and Bank of America had remained purely commercial banks they still would have been too big to fail. Hell, Bear Stearns, a modest sized investment bank, was too big to fail. In the event, I doubt very much that Glass-Steagall had much if anything to do with our banking disaster.
My response:



Bullshit, Kevin. GLB most certainly was a major cause of this, and the Big Dog knows damn well it was. The fact of the matter is for all the good Clinton did accomplish, signing GLB into law was arguably his single largest mistake. Yes, banks started to get bigger by 1999. But the regulations watching over these institutions were gutted by GLB. As a result, companies like AIG got so big they would have taken down the entire economy if they had collapsed...and still might.

If the regulations left after GLB were enforced then that would be one thing. But they weren't...and GLB was a big cause of the problem. The difference between merely too big and too big to be allowed to fail, specifically, the difference between banks and banks with such heavy counterparty obligations to insurance companies, investment houses and other banks that their failure would destroy the economy was specifically the moral hazard created by GLB.

Bill Clinton's quietly trying to sweep the fact he signed this law under the rug. He's reponsible for this mess just as surely as Bush and his cronies are, and both Democrats and Republicans in Congress are as well. Pretending otherwise is pointless.

Widening The Schism

There's no greater evidence of the split between the Wingers and the GOP right now than the Sotomayor fight. The Michael Steele wing realizes this is in every way a losing battle: Sotomayor is the most qualified Supreme Court nominee in decades, with the most federal judge experience in seventy years, appointed by Poppy Bush to the federal courts, plus graduating top of her class in Princeton and Yale law school. There's no way they can attack her without coming across as disgustingly personal or being the Party of No, and this side is more than aware of what's at stake.

The Rush Limbaugh wing on the other hand couldn't care less. Their hatred for Obama so drives them to the point of insanity that they cannot accept a Latina on the Supreme Court unless that person is Alberto Gonzales in a dress. The sheer volume of the deluge of racism and misogyny is impressive, considering it has only been rougly 48 hours. They don't care if they come across as hating Hispanics and women...because they hate Hispanics and women.

The lastest insanity in this war? Sotomayor supposedly belongs to the Hispanic "identity group" La Raza.
As President Obama's Supreme Court nominee comes under heavy fire for allegedly being a "racist," Judge Sonia Sotomayor is listed as a member of the National Council of La Raza, a group that's promoted driver's licenses for illegal aliens, amnesty programs, and no immigration law enforcement by local and state police.

According the American Bar Association, Sotomayor is a member of the NCLR, which bills itself as the largest national Hispanic civil rights and advocacy organization in the U.S.

Meaning "the Race," La Raza also has connections to groups that advocate the separation of several southwestern states from the rest of America.
Which is much like any African-American professional belonging to the NAACP, or a Jewish professional belonging to any of a number of Jewish advocacy groups, or a female professional belonging to NOW, or a gay professional belonging to one of any number of gay rights advocacy groups.

But apparently we're supposed to believe a Puerto Rican woman from the Bronx who is a Princeton summa cum laude grad is secretly pushing for Mexico to retake the American southwest.

The GOP self-destruction continues. Congressional Republicans are trapped. They dare not fight their base on this, but they dare not go after Sotomayor on these completely insane racist attacks, either.

One of the two will have to give this summer, and either way the GOP loses.

Deal Of The Century

The newest Winger Obama Derangement Syndrome stupidity? The list of Chrysler dealers closed was generated by targeting specifically those dealers that donated to the Republicans.

No, really. That's the theory.
Evidence appears to be mounting that the Obama administration has systematically targeted for closing Chrysler dealers who contributed to Repubicans. What started earlier this week as mainly a rumbling on the Right side of the Blogosphere has gathered some steam today with revelations that among the dealers being shut down are a GOP congressman and closing of competitors to a dealership chain partly owned by former Clinton White House chief of staff Mack McLarty.

The basic issue raised here is this: How do we account for the fact millions of dollars were contributed to GOP candidates by Chrysler who are being closed by the government, but only one has been found so far that is being closed that contributed to the Obama campaign in 2008?

Florida Rep. Vern Buchanan learned from a House colleague that his Venice, Florida, dealership is on the hit list. Buchanan also has a Nissan franchise paired with the Chrysler facility in Venice.

"It's an outrage. It's not about me. I'm going to be fine," said Buchanan, the dealership's majority owner. "You're talking over 100,000 jobs. We're supposed to be in the business of creating jobs, not killing jobs," Buchanan told News 10, a local Florida television station.

Buchanan, who succeeded former Rep. Katharine Harris in 2006, reportedly learned of his dealership's termination from Rep.Candace Miller, R-MI. Buchanan owns a total of 23 dealerships in Florida and North Carolina.

Also fueling the controversy is the fact the RLJ-McCarty-Landers chain of Arkansas and Missouri dealerships aren't being closed, but many of their local competitors are being eliminated. Go here for a detailed look at this situation. McClarty is the former Clinton senior aide. The "J" is Robert Johnson, founder of the Black Entertainment Television, a heavy Democratic contributor.
I'm going to go out on a limb here and say that the majority of people who own dealerships are in fact pretty damn wealthy. In fact, I'm going to say that these dealers are wealthy enough to donate to political parties, and since most of them are local small business owners, they tend to strongly favor the Republican party as such.

What's the crucial piece of information missing from this story? The number of Chrysler dealers remaining open who donated to the Republican Party.

In fact I'm betting it's north of 80%. So yes, if 80% or 90% of ALL Chrysler dealers are Republicans because they are small business owners, then yes...you would expect in a fair process that 80 or 90% of the closed Chrysler dealer would also be Republicans and Republican donors.

But of course, nobody's asking THAT question. It's much easier to say "AHA OBAMAFASCIST CLOSED ONLY REPUBLICAN CHRYSLER DEALERS" and engage in baseless Obama-bashing. It's what wingers do, after all.

If only there was somebody who could run the numbers on that...paging Nate Silver at FiveThirtyEight!
Overall, 88 percent of the contributions from car dealers went to Republican candidates and just 12 percent to Democratic candidates. By comparison, the list of dealers on Doug Ross's list (which I haven't vetted, but I assume is fine) gave 92 percent of their money to Republicans -- not really a significant difference.

There's no conspiracy here, folks -- just some bad math.

It shouldn't be any surprise, by the way, that car dealers tend to vote -- and donate -- Republican. They are usually male, they are usually older (you don't own an auto dealership in your 20s), and they have obvious reasons to be pro-business, pro-tax cut, anti-green energy and anti-labor. Car dealerships need quite a bit of space and will tend to be located in suburban or rural areas. I can't think of too many other occupations that are more natural fits for the Republican Party. Unfortunately, while we are still a nation of drivers, we are not a nation of dealers.
And that just about wraps this one up, kids.

But thanks for playing.

A Jumbo-Sized Foreclosure Problem

Earlier this week I talked about the residential real estate market in Phoenix, Arizona, and noted the real problem will be foreclosures in the high-end market nationally. How bad is the real estate market for high-end homes?

This bad, according to CNBC's Diana Olick.
I heard a startling statistic from the National Association of Realtors this morning…no not that home sales are actually increasing, but something about the high end of the market.

Chief economist Lawrence Yun said that the supply of existing homes for sale over $750,000 has reached a forty-month supply. Yep, that means it would take well over three years at the current place to sell off all of those homes.

The trouble is manifold: Jumbo loans are pricier and more difficult to get, job losses are mounting, and buyers in that price home are generally move-up buyers, so they have to sell their own homes first. I asked Mr. Yun if, given how hard it is to sell a home in that price range, he expects to see more foreclosures of high-end properties. He said absolutely.

That’s going to mean a new phase of the current housing recession. So far we’ve seen the “correction” of a boom market that was driven by faulty, exotic loan products, investors looking to make a quick buck, and average Americans using their homes as ATMs. Now the losses are being driven by traditional economic factors and by sweeping price drops across the nation.

And with rising interest rates brought on by the bond market selloff, this particular problem will only get worse. A 40-month supply of $750,000 homes on the market? That would be hysterical if it didn't mean these homes are going to continue to lose billions and billions in value. A bottom in the housing market? Please. The depression is raging.

Oh, and it gets worse:

Yesterday Fitch ratings estimated that up to 75 percent of the modifications now being done through the administration’s Making Home Affordable program will re-default in six months to a year. I’m not talking about the old mods, which were largely repayment plans that could actually raise monthly payments. I’m talking about the new mods, which lower monthly payments to 31 percent of a person’s income. I couldn’t understand Fitch’s reasoning, so I called them.

Diane Pendley, managing director at Fitch, said the problem is not on that “front-end” ratio, but on the back end, which is all of the borrowers other debt (credit cards, car loans, student loans, etc.). She said that in talking with servicers, she’s hearing other debt is so high that most of today’s troubled borrowers cannot afford any loan payment at all, even at a very modest debt to income ratio. “Just getting the house payment done doesn’t mean their lifestyle is sustainable,” she said.

In other words, there's a very good chance that 4Q this year and 1Q next will see a massive foreclosure spike again.

Oh, but it gets worse.

Another problem is that with home prices continuing to fall, more and more borrowers, who are essentially just renting their mortgages now because they will never see any home equity, are walking away. Even if the mortgage payment is low, the property taxes and home maintenance costs are padding that payment, and without an upside to the investment, there’s simply no reason to pay.
Jingle mail, jingle mail, jingle all the way...

What recovery? Until housing turns around, America is sunk...and it may be another year or more before that happens.

[UPDATE] Mortgage delinquency numbers are out: Roughly one in eight homeowners is now 30 days or more late on their mortgage or in forclosure (emphasis mine):

A record 12 percent of homeowners with a mortgage are behind on their payments or in foreclosure as the housing crisis spreads to borrowers with good credit. And the wave of foreclosures isn't expected to crest until the end of next year, the Mortgage Bankers Association said Thursday.

The foreclosure rate on prime fixed-rate loans doubled in the last year, and now represents the largest share of new foreclosures. Nearly 6 percent of fixed-rate mortgages to borrowers with good credit were in the foreclosure process.

At the same time, almost half of all adjustable-rate loans made to borrowers with shaky credit were past due or in foreclosure.

The worst of the trouble continues to be centered in California, Nevada, Arizona and Florida, which accounted for 46 percent of new foreclosures in the country. There were no signs of improvement.

The pain, however, is spreading throughout the country as job losses take their toll. The number of newly laid off people requesting jobless benefits fell last week, the government said Thursday, but the number of people receiving unemployment benefits was the highest on record. These borrowers are harder for lenders to help with loan modifications.
Congress killed cramdown too. We may not see the bottom of the housing depression until 2011, folks. The Great Recession rolls on.

Watch the stock market closely. The "correction" is coming and soon.

If It's Thursday...

623,000 newly unemployed, 6.78 million continuing claims. We're still seeing consistently bad jobs numbers and will continue to do so for months, if not longer.

The Bond Market Sees It Coming

No, not the stock market. Those guys are still betting on a magical super recovery. The bond market on the other hand is going haywire, with a selloff yesterday so steep that it sent a new treasury bond curve record.
The U.S. Treasury yield curve moved to its steepest level on record on Wednesday, with the spread between 10- and two-year note yields gapping to 275 basis points, beating a previous peak set in 2003.

U.S. government debt prices fell sharply as a well-received auction of new five-year notes proved insufficient to assuage ongoing concerns about the growing supply of bonds.

Analysts are increasingly concerned about the Treasury's ability to fund costly economic rescue measures that are expected to drive this year's budget deficit to $1.75 trillion.

An auction of 7-year treasury notes is on today, giving yet another chance to spike the markets.

So what? "The bond markets sucks, what does this mean for me?" Real simple: the bond market determines long-term interest rates in the short run. A selloff of this magnitude is pushing interest rates back up sharply across the board, and that's bad, bad news for the housing market (as if it needed any more bad news). This means adjustable rate mortgages will be adjusting up, meaning higher mortgage payments for millions of Americans if this keeps up.

In other words, inflation. It's back, and it's back big time.

But it's also a massive alarm bell here. People are dumping Treasury bills like they are radioactive, and they are in a real sense. Remember, Treasurys are basically IOUs from the government. If people aren't buying America's debt, America is in even more short-term financial trouble. America has to sell this debt to raise money to cover the trillions in the deficit.

What the bond market is saying is "Hey pally, you're issuing way the hell too many IOUs." And it's saying that with a lot of exclamation points.

Higher interest rates means that recovery people keep talking about in 3Q-4Q 2009 is going to take a major hit along with a whole lot of Americans.

If it gets to the point where we can't sell all the Treasurys we auction, we're in instant serious trouble.

Obama's borrowed trillions. Rates are now going up. That will cause inflation. You will have to pay more for everything while your wages go down in this economy. We've hit the point where the inflationary pressures of borrowing so much has now started to counteract the deflationary pressure of falling real estate prices. The market thinks housing is starting to recover, starting to hit bottom. I don't think that's true, and that actually might be good news: it will counter this inflation spike if real estate continues to fall.

But for how long?

StupidiNews!