Now raising intellectual capital

from Rolfe Winkler:

2010: Walking away will gain cachet

Why bother? That’s the question more underwater Americans are asking themselves about their mortgage.

Trapped in the abyss of negative equity, more will decide to quit paying. As they should.

About a quarter of all mortgages in the United States are on houses that are worth less than the unpaid balance of the mortgage, according to real estate consultant First American CoreLogic. About half of that group, 5.3 million borrowers, are 20 percent or more underwater. For 2.2 million, the property is worth less than half the mortgage balance.

Those folks are called “homeowners,” but “homeborrowers” would be more accurate. All they own is an obligation to whatever entity services their mortgage. They’re essentially renters paying above-market prices.

from Rolfe Winkler:

Lunchtime Links 12-29

Was the global financial crisis a mathematical error? (Steve Keen, Business Spectator) Keen's latest. Another great piece explaining the flaws of neoclassical economics. (ht Yves)

Not just Tiger's temptations (Glanville, NYT) Another great column from ex-Cub/Phillie Doug Glanville.

from Rolfe Winkler:

Evening Links 12-23

(Reader note 1: posting will be light through the weekend....taking a few days off)

(Reader note 2: Just saw Avatar, the IMAX 3D version. I highly recommend it.)

Food stamps altering how retailers do business (Maestri/Baertlein, Reuters) "At 11 p.m. on the last day of the month, shoppers flock to the nearest Walmart. They load their carts with food and household items and wait for the midnight hour. That's when food stamp credits are loaded on their electronic benefits transfer cards."

Losing the 3 handle on GDP


The downwardly revised 3rd quarter GDP certainly didn’t shock economists who were expecting a softer reading than the initial 3.5 percent, but the 2.8 percent certainly isn’t pretty especially considering the psychological blow of losing of the 3 handle. (Speaking of symbolic numbers, the FDIC also reported that its reserve fund is now in the red.) There’s still one more revision ahead though, so maybe it will inch back to 3 percent.

Weaker consumer spending – up 2.9 percent versus the originally estimated 3.4 percent – isn’t exactly encouraging since the recovery needs the nation’s shoppers to quicken the pace a little if the economy has any hope of picking up steam. And remember, the “cash for clunkers” program was a big contributor to the gain. It’s also no surprise that government expenditures helped at least partially offset the decline. Such spending increased 3.1% from the original estimate of 2.3%.

Government weighed down by bad mortgages


The Federal Housing Administration – the U.S. agency that actually enjoys full faith and credit of the government – is in quite a pickle. Reuters reporting that its capital reserves stand at a scant 0.53 percent, below the 2 percent regulatory minimum and without spitting distance of the “help me” threshold.

The deterioration has been fast and furious. Last year the ratio stood at 3% and the year before than 6.4%, according to The Wall Street Journal.

Nooooo…not Fannie and Freddie


I know that the government already leaked the plan, but seeing it actually launched I can’t help but feel a little despair that the Obama Administration continues to use Fannie and Freddie to implement new housing policy.  I wrote a column when the idea was first floated to help state and local housing agencies access financing.

Simply, all things Fannie and Freddie at this point – more than a year into the conservatorship – should be squarely focused on sorting out what exactly they’re suppose to be. It seems absurd that they continue to operate in limbo given their enormous role in the housing market and credit markets. Either nationalize them, privatize them or unwind them, but don’t give them new tasks to perform.

Kohn on V-shapes, housing, inflation and a whole lot more


Donald Kohn, the Fed’s number 2, has a lot to say about the economic outlook but not a whole lot new in terms of when the central bank will reverse course on its extraordinary easy monetary policy. Full speech at the National Association for Business Economics in St. Louis can be found here.

Some choice bits:

I don’t think a V-shaped recovery is the most likely outcome this time around.

Been down so long, it looks like up


The latest S&P Case-Shiller home price data is feeding into the feel-good vibe of the moment, of mergers the Dow approaching 10,000 and other green shoots. The composite index of home prices for 20 U.S. metropolitan regions rose 1.6 percent in July from June — a stronger gain than expected and the third consecutive monthly gain. As the release notes, there have now been “six months of improved readings,” and this is giving some early support to stocks and the dollar.

Yet the year-over-year rate remains well in negative territory: a 13.3 percent decline for the 20-city index and a 12.8 percent decline in the 10-city index. Yes, 17 of the 20 cities had monthly gains, but 14 are still showing annual declines in the double-digits.

Stabilizing housing should make toxic assets easier to sell


When the subprime lending market fell off a cliff and the housing market with it, trying to figure out what the mortgage loans and bonds were truly worth became a pointless exercise since no one could agree when home prices would stop falling. Banks didn’t want to sell the assets at a steep loss since they hoped (and prayed) in the long run many of these loans and bonds would continue to perform. Buyers, of course, wanted to be compensated handsomely for the risk of taking on these loans when prices continued to plummet and the ranks of jobless swelled.

That appears to be changing. Though the unemployment rate is expected to go higher still and will stay elevated for some time to come, the number of those getting pink slips has started to moderate and home prices appear to have stabilized. Check out the chart below of the S&P Case-Shiller index of home prices in 20 metropolitan areas.

from Rolfe Winkler:

NYT: Fight to extend the house tax credit

It's perhaps no surprise that the National Association of Realtors is fighting to extend the tax credit for homebuyers. They also want the credit enlarged and they want it to apply to everyone. From NYT:

The real estate industry, including the powerful 1.1 million-member National Association of Realtors, wants Congress to extend the credit at least through next summer. The group hopes to expand the program to $15,000 [from $8,000] and to allow all buyers, not just those who have been out of the market for at least three years, to qualify. The price tag on that plan: $50 billion to $100 billion.