Sometimes the news is so strange, weird and wacky that the word askance comes to mind. The American Heritage Dictionary defines the word as suspicion, disapproval or distrust as well as to look with a sideways glance. So, here are a few of today's Vance's Askances! Our apologies to all you lexophiles for absconding with a shaky literary license.
"The housing market has decisively turned for the better," National Association of Realtors (NAR) chief economist Lawrence Yun declared last week. He was crowing about the NAR report that showed July existing home sales up 7.2%, the biggest month-over-month gain in ten years. There is victory in realty world.
We are always skeptical when Mr. Yun reports anything but this one really takes some chutzpah. He forgot to mention that the inventory of unsold homes rose by 7.3%. In other words, more homes came on the market than came off the market. The inventory number of homes available rose to 9.4 months.
The rise is most likely temporary as some first time homebuyers scramble to take advantage of the $8,000 bonus but that program expires November 31. To close a deal, even the NAR says buyers-to-be need to place offers within the next month. Those folks accounted for 30% of the buying "frenzy."
Then, it turns out, 31% of sales were distressed properties, foreclosures or bank short sales. Many sales are, no doubt, to anxious speculators who haven't figured out that prices are still declining. When it all shakes out, only about 10%-20% of the sales was truly what we would categorize as normal home sales that are representative of a normal housing market.
What seemed to escape notice were the delinquency rates as reported by the Mortgage Bankers Association (MBA). The mortgage delinquency rate rose to 9.24%, a new record and this was combined with news that about 4% of homes are in foreclosure, also a new record. Total all that up and 13.16% of all outstanding mortgages are in foreclosure or delinquent. Can you fathom this: 1-in-8 homeowners are in dire straits?
Add all of this to another scary bit of data from the MBA which is prime loans are now the problem while sub-prime loan defaults have leveled out at about 25%. The best and most credit worthy borrowers are cracking at the seams. Not only that but the median price of homes has dropped 15% more in the past year to $178,400.
Mr. Yun is not exactly known for wizardry in the forecasting department. A year ago in the same report he had this to say: "We expect more balanced conditions in 2009 and will eventually return to normal long-term appreciation patterns." He projected home prices to increase 3-6% in 2009. Surely the NAR can find a better spokesperson among the nation's 14.5 million unemployed bodies, all of whom can probably take a walk through their neighborhood and be more accurate in their prognostications.
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The banking crisis is over (in so many words) says Fed honcho, Ben Bernanke. No doubt it is for his flock of sheep who have endured the worst credit crunch since the depression years. The big banks that are "too big to fail" have been bailed out by the taxpayers but the small and mid-size banks still face an uphill climb.
Guaranty Bank collapsed as we warned several weeks ago. This is the 10th largest bank failure in U.S. history and is expected to cost the FDIC about $3 billion. With over 80 bank failures this year, some well known banking analysts are expecting another 200+ before the end of the year.
Here is a snapshot of what seems to be unfolding. Banks typically make money by originating home loans. Then they sell those loans to Fannie and Freddie who then sell them to Merrill Lynch, Morgan Stanley, Smith Barney and other investment firms. They, in turn, package these loans and sell them as triple-A rated securities.
Everybody gets a paycheck and everybody is happy. Here is the odd part. Many of the small and mid-size regional banks then bought those securities themselves! Yep, they made money on the originations but figured that the Wall Street firms were honest enough that the stuff they sold was safe and a heckuva lot more profitable than government treasury bonds. The banks were buying these up for their own investment portfolios and some of the rot is so bad that up to 40% of their portfolios stink to high heaven.
The Wall Street Journal had an interesting article over the weekend titled, "Big Government, Big Recession" that was written in response to a New York Times article by Paul Krugman who said, "So it seems that we aren't going to have a second Great Depression after all." Good news, huh?
The solution it appears has been big government and the stimulus plan. However, CNN Money recently calculated that the stimulus plan has spent just $120 billion-less than 1% of GDP. Most of this ($53 billion) was spent on temporary tax cuts plus additional Medicaid, food stamps and unemployment benefits. Less than $1 billion has been spent on highway and energy projects. Or in the case of our little burg, trolley busses.
With spending so low, it hard to give credit to big government for averting GD II. The proponents point to the first depression and caution against slashing spending. However, during the Hoover years, Federal spending rose by 6.2% in 1930, 7.7% in 1931 and 30.2% in 1932. Since prices were falling during that time, spending was huge indeed.
A 1999 study in the Journal of Economic Perspectives by Christina Romer (now head of the Council of Economic Advisors) discovered that "real macroeconomic indicators have not become dramatically more stable between the pre-World War I and post-World War II eras, and recessions have become only slightly less severe." She also noted that "recessions have not become noticeably shorter" in the era of Big Government.
The article clearly points out that Big Government is not the answer. In fact, the more money that is spent on stimulus the longer and more severe the recessions. The average length of recessions from 1887 to 1929 was 10.3 months. The longest was 16 months. Since 1973, there have been three recessions that have lasted at least as long.
Supply and demand works. If left alone, economies right themselves without government help. This is contrary to Mr. Obama's claim that government is the only thing that can help us climb out of this financial debacle. The problems seem to have started after the Federal Reserve System was started in 1913. Since that time, economic stability has not improved but gotten worse and this trend will no doubt continue.
The Fed is not the government; the Fed is the banking cartel. The Fed and their member banks print all the money (except coinage which the government does in accordance to the Constitution) and lend it to the U.S. government (that is us) all the while collecting interest and burdening our citizens with ever-growing debt. Another day, we shall explore this in detail but suffice it to say, there is no such thing as a government printing press. That chore is left to the Federal Reserve Board and the banks. The government simply uses our tax money to pay the interest to the banksters.
There are two conclusions for now: 1) bigger government appears to spur longer and nastier recessions and 2) the smaller banks are being allowed to fail so we can create bigger banks that are "too big to fail." That is what the Federal Reserve System is all about.
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