FedUpUSA

Archive for April 15th, 2010

March Foreclosures Surge To Absolute Record, At 369,491, 19% Jump from February

Submitted by Tyler Durden

RealtyTrac reports the next catalyst that will surely take the Dow to 12,000 by 9:31 am tomorrow. “Foreclosure filings were reported on 367,056 properties in March, an increase of nearly 19 percent from the previous month, an increase of nearly 8 percent from March 2009 and the highest monthly total since RealtyTrac began issuing its report in January 2005.” And people were wondering where consumers get all their money from. Of course, those foreclosed upon have likely figured out ways to continue squatting in their house so they dont have to pay mortgage and rent. Nothing beats living for free in America, especially in a 2,000 sq. foot average home. We can’t wait to hear Jamie Dimon’s rebuttal on how this data massively misrepresents the optimism that JP Morgan is seeing everywhere, and how the JP Morgan unicorn ranch is about to issue a royal smackdown on those speculative traitors over at RealtyTrac who, unlike JPM, dare to speak the truth.

“Foreclosure activity in the first quarter of 2010 followed a very similar pattern to what we saw in the first quarter of 2009: a shallow trough in January and February followed by a substantial spike in March,” said James J. Saccacio, chief executive officer of RealtyTrac. “One difference, however, is that the increases were more tilted toward the final stage of foreclosure, with REOs increasing 9 percent on a quarterly basis in the first quarter of 2010 compared to a 13 percent quarterly decrease in REOs in the first quarter of 2009.
This subtle shift in the numbers pushed REOs to the highest quarterly total we’ve ever seen in our report and may be further evidence that lenders are starting to make a dent in the backlog of distressed inventory that has built up over the last year as foreclosure prevention programs and processing delays slowed down the normal foreclosure timeline.”

More on REOs:

Bank repossessions (REOs) also hit a record high for the report in the first quarter, with a total of 257,944 properties repossessed by the lender during the quarter — an increase of 9 percent from the previous quarter and an increase of 35 percent from the first quarter of 2009.

We await to find out just how the bottom having finally fallen out of the US ho(u)sing market is a definitive victory for the bulls.

And what state has the most foreclosures if not that one what is first and last out of and into every single bubble there is:

California alone accounted for 23 percent of the nation’s total foreclosure activity in the first quarter, with 216,263 properties receiving a foreclosure notice — the nation’s highest foreclosure activity total.

Florida’s total was second highest, with 153,540 properties receiving a foreclosure filing during the quarter, and Arizona’s total was third highest, with 55,686 properties receiving a foreclosure filing during the quarter.

Despite a nearly 5 percent decrease in foreclosure activity from the previous quarter, Illinois documented the fourth highest foreclosure activity total, with 45,780 properties receiving a foreclosure filing — still a 17 percent increase from the first quarter of 2009.

A total of 45,732 Michigan properties received a foreclosure filing during the quarter, the fifth highest state total. Michigan foreclosure activity increased nearly 11 percent from the previous quarter and was up nearly 38 percent from the first quarter of 2009.

Other states with foreclosure activity totals among the nation’s 10 highest were Georgia (39,911), Texas (37,354), Nevada (34,557), Ohio (33,221) and Colorado (16,023).

The only beneficiary out of all this seems to be the cable (GBPUSD), which is now back to mid-February levels. Good thing that whole housing/Greek thing is contained.

Death-Spiral Intercept

Posted by Karl Denninger

Well well well….

In essence, White was saying: “it’s the debt, stupid.”  When aggregate debt levels build up across business cycles, economists focused on managing within business cycles miss the key ingredient that leads to systemic crisis. It should be expected that politicians or private sector participants worried about the day-to-day exhibit short-termism. But White says it is particularly troubling that economists and their models exhibit the same tendency because it means there is no long-term oriented systemic counterweight guiding the economy.

This short-termism that White refers to is what I call the asset-based economic model. And, quite frankly, it works – especially when interest rates are declining as they have over the past quarter century. The problem, however, is that you reach a critical state when the accumulation of debt and the misallocation of resources is so large that the same old policies just don’t work anymore. And that’s when the next crisis occurs.

It seems that Mr. Harrison has it figured out.  He goes on to spend a lot of digital ink on the periphery of the bottom line, which is that we continue to think of debt in terms of service costs (indeed, you’ll hear Bernanke talk about it, but never about the actual gross financial system debt outstanding.)

When you boil all this down, however, you get to the following chart (trendline added by moi):

You can see what’s going on here – each “crisis” leads to lower lows and lower highs. 

This presents two problems:

• Lower lows have run into the zero boundary.  That wasn’t sufficient this time, which of course is why we got “Quantitative Easing” and other similar abortions intended to distort market rates – like guarantees on bank debt, for example.  Ultimately this devolves into The Fed or The Government (as if there’s a real difference) guaranteeing everything to prevent spreads from blowing out.

• Far more sinister, however, is what happens to the top line.  The top line – that is, the maximum rate between crises, declines because it becomes impossible to normalize rates - nobody can afford to pay “normal” rates with the amount of leverage they have.

This is where the ultimate failure in policy arrives, and it leads to at best a Japan-style scenario where the economy fails to come out of recession or, at worst, monetary and political system failure.

We had a bubble at the S&L crisis, ultimately culminating in the Tech Wreck, because we refused to force the bad debt to clear.  This was obvious even in the 1990s, but nobody wanted to hear it.  The few businesses that ran without leverage did ok, but those who ran lots of leverage had spectacular success – right up until they detonated, and most of them did.

The 2000s were marked by even more leverage.  Why?  Because it was the only way to get return left.  The Government, having stepped in to support the economy with $500+ billion annually in deficit spending, was unable to pull back without instantaneously crashing the economy:

They thought they were smart. 

In point of fact, they were criminally insane, and proof of it is found in what we’re doing now.

We now have both driven the low end of the rate curve to zero and taken on more than $3 trillion in new Federal debt.  To put this in perspective the total outstanding accumulated Federal Debt at the end of 1992 – from the founding of the US to January 1st of 1993 – was just $4.2 trillion. 

We added more Federal debt than had been accumulated in 217 years in just a little over THREE years - from 2007 to the third month 2010.

The ugly is that this debt load (currently $12.8 trillion, more or less) presents interest expense.  If the Fed Funds Target was to reach just five percent, and every bit of the Treasury debt was to be refinanced into overnight obligations at that same 5%, the interest expense alone of the current debt would be $640 billion a year.

If the Treasury was to have to pay a roughly 6% average coupon (reasonably aggressive with a 5% Fed Funds Target) the interest expense would be $768 billion annually.

To put this in perspective that is an amount roughly equivalent to that spent on defense, and is higher than Social Security, Medicare, or all other “mandatory” program spending combined.

It would consume nearly all of Social Security and Medicare tax receipts ($891 billion) or the personal income tax ($915 billion)  (ed. All 2009 federal budget numbers)

It is also four times what we spent last year on interest.

There is not a snowball’s chance in Hades that the Federal Government can afford that.

This will inexorably lead to political pressure to hold down rates, which will in turn lead to more malinvestment – and bubbles.  Like, for instance, an 80% increase in stock prices in one year, or more than a doubling in the price of oil over the same time.

It will also lead to silly things like allowing banks to hold “assets” at dramatically above their true value in order to keep them from having to hold sufficient capital against real losses, in a futile attempt to keep them from going boom.

But you can’t fix debt intoxication with another bottle of whiskey.

What we’re doing now will inevitably lead to another crisis, this one much worse than the last.  Burdened with the bad paper they refused to unload, the banks will get into cash flow trouble as their attempt to extract ever-larger amounts of money from everyone else in society to paper over their own insolvency will ultimately fail.

The Federal Government will see the market back up rates irrespective of what they try to do, just as Greece has.  This will force borrowing costs higher, and ultimately make destruction of the “mandatory” on-budget programs necessary.

What comes with that is anyone’s guess – in particular, whether civil order survives in a world where half of Medicare and Social Security are gone, all other “mandatory” programs are erased, and taxes are running at roughly double the rates we have today.

Timing?  Best case, a few years.  Worst case, anything could set it off.  Defaults in other nations, a loss of confidence in The Fed or Government, war.

But what’s not in question is the outcome if we do not change course.  If we do not take serious, even radical steps.  If we do not stop the deficit spending, accounting fraud, bailouts and punitive view of the tax system toward capital formation.

All of those things must happen, and happen soon, but there is no political will to do any of them.  The banks have the government in their pocket – witness the statements made in the WaMu hearings Tuesday, when a literal 500-page tome of reference documents on the witness table laid forth one of the most-voluminous list of alleged felonies I have ever seen in a Congressional Hearing.  Or Kanjorski’s joke of a hearing last year in which FASB effectively had a gun shoved up their nose and was told to legalize balance-sheet fraud.  Or Paulson and Bernanke’s “dead of night tanks in the street” game of fear run on Congress in 2008 – after they created the conditions for that fear by willfully and intentionally ignoring the fact that Lehman had been insolvent literally for months.

No folks, we’re not going to get out of this cleanly.  Enjoy trading the market which ever way it goes.  The “pumpfest” is on full-bore now, with CNBC and everyone else crooning about how “retail” (that’s you!) has missed it and needs to “get in the game.” 

They don’t ring a bell at the top, but they sure do herd the sheep into the pen to be shorn, and you can bet that those who placed bets against Armageddon last time need someone – you – to sell to.

Maybe you’re fast enough, maybe you’re not.  But just as the last time around, when the banksters knew for three months that Lehman was bankrupt before you did (and you can bet they placed their chips on the table!), you won’t be told in advance before the floor disappears – but they both will be told and they’ll be the ones to pull the pin.

It isn’t different this time folks, and the math is never, ever wrong.

William White, from the BIS, on failures in economic theory, politics and policy.

Mostly not so ‘unexpectedly’ for readers of FedUpUSA.

Jobless Claims in U.S. Unexpectedly Rose Last Week

April 15 (Bloomberg) — The number of Americans filing claims for jobless benefits unexpectedly increased last week, indicating the improvement in the labor market will take time to unfold.

Initial jobless applications increased by 24,000 to 484,000 in the week ended April 10, the highest level since Feb. 20, Labor Department figures showed today in Washington. A Labor Department spokesman said the rise in claims was due more to administrative factors reflecting volatility around Easter than economic reasons.

Reluctance among some companies to hire is one of the challenges facing the economy as it recovers from the worst recession since the 1930s. Employment gains are needed to help spur consumer spending, which accounts for about 70 percent of the economy.     “We’re not making rapid progress” in bringing down claims, Neal Soss, chief economist at Credit Suisse Holdings USA Inc. in New York, said in an interview with Bloomberg Radio, while also noting the holiday may have distorted the figures. “Job growth over the course of this year will be sufficient to bring the unemployment rate down.”

Economists forecast claims would fall to 440,000 from a previously reported 460,000 the prior week, according to the median of 44 projections in a Bloomberg News survey. Estimates ranged from 415,000 to 451,000.

Stock-index futures extended losses after the report. Futures on the Standard & Poor’s 500 Index dropped 0.2 percent to 1,204.50 at 9:01 a.m. in New York.

New York Manufacturing

A separate report showed manufacturing in the New York region rose more than anticipated in April. The Federal Reserve Bank of New York’s general economic index increased to 31.9 from 22.9 in March. Readings greater than zero signal growth.

The number of people receiving unemployment insurance increased, while those getting extended benefits also rose, today’s report showed.

The four-week moving average of initial claims, a less volatile measure than the weekly figures, increased to 457,750 last week, from 450,250.

The number of people continuing to receive jobless benefits increased 73,000 in the week ended April 3 to 4.64 million. The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs.

Extended Benefits

The number of people who’ve used up their traditional benefits and are now collecting emergency and extended payments rose by 162,101 to 5.97 million in the week ended March 27.

The unemployment rate among people eligible for benefits, which tends to track the jobless rate, rose to 3.6 percent in the week ended April 3 from 3.5 percent.

Twenty-nine states and territories had an increase in claims for that same week, while 24 had a decrease.

In addition to Easter, a state holiday in California on March 31 likely played a part in last week’s rise in initial claims, the Labor Department spokesman said.

Payrolls rose by 162,000 in March, the biggest gain in three years, the Labor Department reported April 2. The unemployment rate was 9.7 percent for a third month and has not increased since reaching a 26-year high of 10.1 percent in October.

Fed’s Bernanke

Federal Reserve Chairman Ben S. Bernanke said yesterday that the labor market will be slow to recoup the number of jobs lost since the recession began in December 2007.

“Consumer spending should be aided by a gradual pickup in jobs and earnings, the recovery in household wealth from recent lows, and some improvement in credit availability,” the Fed chairman said in prepared testimony to the Joint Economic Committee of Congress. Even so, “a significant amount of time will be required to restore the 8 1/2 million jobs that were lost during the past two years.”

In its Beige Book business survey released yesterday, the Fed said some employers are starting to add staff.

“While labor markets generally remained weak, some hiring activity was evident, particularly for temporary staff,” the central bank said. The report reflects information collected on or before April 5 across all Fed districts.

JPMorgan Chase & Co., the second-biggest U.S. bank by assets, is among companies saying they plan to add workers. Chief Executive Officer Jamie Dimon yesterday said in a statement that the New York-based firm expects to hire about 9,000 new employees in the U.S.

“There is clear and broad-based improvement in the economic factors in the United States and around the world,” Dimon, 54, told reporters on a conference call after the company announced that first-quarter earnings beat analysts’ estimates. “It appears to be strengthening, not weakening. It is possible that they will strengthen enough to end up with a strong recovery.”

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

Mish Makes Senate Hearing Docs Exhibit #51 on the Financial Crisis

Inquiring minds are digging extremely deep into a 666 page Senate hearing document on the financial crisis.

I am now part of the official record of the US Senate Permanent Subcommittee On Investigation Exhibits of the Wall Street and Financial Crisis, the Role of High Risk Home Loans published April 13, 2010.

Exhibit 51 starts is on pages 434-439 of the document.

The next several pages are screen snapshots from Evidence of “Walking Away” In WaMu Mortgage Pool written Saturday February 23, 2008.

Here are some of my comments at the time.

Let’ do the math.

• The total pool size is $513,969,100.
• $476,069,000 was rated AAA.
• 92.6% of this cesspool was rated AAA.
• Yet 15% of the whole pool is in foreclosure or REO after a mere 8 months!

In addition, the data suggests that people are not even bothering to wait for delinquencies to hit 90 days. Instead they are handing over the keys right now.

Washington Mutual was the underwriter. If you bought a slice of this cesspool from WaMu, are you going to buy their next offering? One final question: Does anyone have any reason to trust any rating from Moody’s, Fitch, and the S&P?

Those comments and various screen shots I posted (the entire blog post actually) are now part of the official Senate investigation. It’s too bad they were not reading me in 2006 when I warned this would happen.

By the way, there is no way I would have found that reference on my own accord, but somehow a reader did.

Brian writes

Hello Mish

Thought you would like to see this. Looks like a few folks in WaMu were reading the blog by 2008. Just to give you a sense of the cluelessness of this group, they didn’t even recognize a Bloomberg mortgage screen when they saw it – they speculated as to whether it was an internal WaMu screen shot.

Lehman Brothers Examination Report

I am also pleased to report I am an official part of volume 3 the Lehman Brothers Examination Report on Why Lehman Failed starting on page 822 (PDF page 106 of 336 of volume 3)

In mid?to?late 2007, Lehman faced a growing challenge: the market began demanding that investment banks shrink their balance sheet and lower their leverage. 3166 Before mid?2007, rating agencies, media, and outside analysts who observed Lehman focused on the firm’s revenues and profit and loss, “P&L.” 3167 Sometime in mid?2007, however, those same outside rating agencies and analysts pronounced the metrics of an investment bank’s balance sheet and capital at least as important, if not more, than revenue and P&L.

3167 Mike Shedlock, MISH’s Global Economic Trend Analysis, Bank Balance Sheets and Earnings, http://globaleconomicanalysis.blogspot.com/2007/09/bank?balance?sheets?and?earnings.html (Sept. 30, 2007, 1:38 PM);

I am also in footnote number 3170.

One analyst wrote in late September 2007: “[Banks’] net incomes this quarter don’t matter. And they don’t matter because of one simple rule for financial services firms: The income statement is the past. The balance sheet is the future. . . . At the top of a credit cycle, the income statement for a financial institution shows ‘the best of times’ but buried in the balance sheet is ‘the worst of times’ to come.”3170

3170 Mike Shedlock, MISH’s Global Economic Trend Analysis, Bank Balance Sheets and Earnings, http://globaleconomicanalysis.blogspot.com/2007/09/bank?balance?sheets?and?earnings.html (Sept. 30, 2007, 1:38 PM) (emphasis added)

A big tip of the hat and full credit actually belongs to Minyan Peter who wrote the phrase I quoted “The income statement is the past. The balance sheet is the future, especially now.”

Inquiring minds may wish to revisit Bank Balance Sheets and Earnings written well in advance of the collapse of Lehman on September 30, 2007 and Minyan Peter’s (now Peter Atwater’s) post Bank Earnings 102: The Best of Times, The Worst of Times on Minyanville.

For recent developments on Lehman please see Lehman’s Alter Ego – How Lehman Hid Risk In Shell Corporations; Where is The Indictment of Ex-CEO Dick Fuld?

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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