FedUpUSA » Delinquencies

Americans Are Becoming Desperate

Stephanie — Fri, 16 Dec 2011 20:55:15 +0000

It seems that more and more Americans are becoming desperate enough to steal scrap metal in order to survive this economy. With staggering unemployment figures at an all-time high; home foreclosures in the millions, and with little hope of ever achieving that “American Dream”, stealing scrap metal here and there to put food on their tables may be the only option left for some Americans.

All over America today, desperate people are doing desperate things. As the economy continues to crumble, the American people are starting to become very frustrated. Millions have lost their homes and millions have lost their jobs. As hopelessness and despair rise, an increasing number of Americans are turning to crime or are lashing out in unpredictable ways. Many parts of America are rapidly turning into lawless hellholes. In some of the areas that have been the hardest hit by the declining economy, police forces are being severely cut back and desperate criminals are being given a lot of freedom to roam. In fact, in some major cities (such as Oakland, California), the police have announced that there are certain types of crime that they will not even respond to any more. For a couple of decades, crime had been steadily declining in the United States, but now we are seeing very disturbing reports from all over the nation of desperate people doing desperate things as they scramble to survive or as they vent their frustrations. If the examples that you are about to read are any indication, then America is headed down a very dark path.

According to the Demos report “The Downslide before the Downturn,” five years ago, three-quarters of middle-class families lacked sufficient financial assets to cover even a subset of their essential expenses for a few months if they lost their income or hit a bump in the road.
And the last five years have been bumpy indeed. With no equity in their homes, no savings to speak of, and no adequate safety net in place, many families have turned to credit cards to pay for essentials. More than 40 percent have used credit cards to buy necessities like groceries or gas — putting off payments and inflating them with astronomical interest rates. Already in a hole financially, these families have dug themselves deeper just so they can survive.
When you are barely getting by, and it’s already a hard choice between putting food on the table and gas in your car, every unexpected expense — from a kid’s growth spurt and need for new shoes to having to repair your roof — is a stressful event.
This is exactly what millions of working- and middle-class families have been dealing with. The wild weather since late August has only added to the pressure.
One grandmother in Florida has been accused of trying to sell her newborn grandson for $75,000.
In Antioch, California a total of approximately 300 power poles were recently knocked down by thieves and stripped of their copper wiring.
In Minnesota recently, a mob of teen girls brutally pummeled a mother and her two daughters until they were black and blue. Apparently the mob of teen girls was enraged over a pair of missing sunglasses.
In Asheville, North Carolina thieves recently took off with 4 metal tables and 16 metal chairs that were sitting outside a pizzeria.
In Florida, thieves have actually been stealing storm drain covers.
In Oregon, thieves recently broke into a Salvation Army community center and stole 3 large air conditioning units. Now all the people that come to that facility for help and for community programs this summer will be absolutely sweltering.
In the Cleveland area, two young boys that had set up a lemonade stand were robbed in broad daylight. The crooks got away with approximately 12 dollars.
In Oklahoma, thieves recently broke into a church and stole “arts and crafts supplies meant to help teach bible stories to children”.
A 59 year old man from North Carolina named Richard James Verone was so desperate for money that he actually robbed a bank and got caught on purpose so that he could be put in prison and be given free health care.
In the Cleveland area, two young boys that had set up a lemonade stand were robbed in broad daylight. The crooks got away with approximately 12 dollars.
In Oklahoma, thieves recently broke into a church and stole “arts and crafts supplies meant to help teach bible stories to children“.
A 59 year old man from North Carolina named Richard James Verone was so desperate for money that he actually robbed a bank and got caught on purpose so that he could be put in prison and be given free health care.

The Coming Depression

Oh, So The "Recovery" Is About Delinquency?

FedUpUSA — Wed, 14 Apr 2010 14:52:24 +0000

Oh, So The “Recovery” Is About Delinquency?

Posted by Karl Denninger

I’ve said for a long time that one of the reasons our consumer spending numbers have been “reasonably good” the last six months or so – and have been improving – is that people haven’t been paying their mortgages.

Now comes Bank of America about to tell Congress the same thing:

Bank of America’s top mortgage executive, testifying today before Congress, will release sobering details of home-loan delinquencies, including that “hundreds of thousands of customers” haven’t made a payment in more than a year.

And, to put a number on it…

Almost 500,000 struggling loan customers have not supplied information or taken other basic steps to qualify for mortgage help. About half of them have not made a payment for more than a year, or owe more than 50 percent of the value of their homes.

That’s because those 500,000 lied about their income, assets or both when they applied for the loan originally, and that deception would be discovered.

But this also means that some 250,000 of those customers have not made a payment in a year.

If we presume that these people have average mortgage payments of $1,000 a month (and this number is probably low), this amounts to $250 million monthly that is being spent in the economy but would otherwise go to mortgage payments.

Anecdotes bear these sorts of numbers out – so-called “struggling” homeowners who, despite being delinquent on their mortgage and in fact not having paid in over a year, are spending upwards of $1,500 monthly in places like Best Buy, hairdressers and tony clothing stores.

The essential conundrum is this: Eventually, one way or another, these families will have to start making payments toward housing again. They may make those payments via their mortgage or they may be evicted and become renters but the money currently being blown on frivolities that is “propping up the economy” and leading to “strong consumer sales” is showing up there only because people are literally getting a free ride on their shelter costs.

The perversions at play here are outrageous – not only are these “homeowners” living effectively for free (and since most mortgages have escrow accounts for property taxes, those aren’t being paid either!) but in addition the banks, by not foreclosing, are holding defaulted loan paper on their books at dramatically above recovery value, thereby presenting a false view of their financial health.

Yes, the retail sales numbers this morning were good.

But how those numbers are being generated is important.

If they’re generated off personal income, then they’re good and indicate improvement in the economy. But if they’re being generated by people not paying their debts, and the evidence is that this is exactly where the money is coming from, then we’ve got a problem, because just as with the false economic signals sent by monstrous deficit spending this too is a false signal that will be responded to by the market with ultimately disastrous results.

The largest challenge in trying to formulate a clear view of the future is eliminating these distortions. The “mainstream media” simply ignores these facts, pretending they don’t exist, and then looks at the raw data to draw their conclusions. This is dangerous, even suicidal when attempting to formulate an economic view for yourself or your business, however, as these distortions are real and at some point they will disappear.

We have a new bubble ladies and gentlemen, and this one is the alleged “consumer recovery” coupled with the alleged “banking system recovery.”

Both are bogus, yet both are also intertwined; banks not foreclosing for more than a year, allowing people to live free in a house, gives the consumer faux spending power and at the same time enables the bank to claim “assets values” that in fact don’t exist.

As with all such deceptions and the economic bubbles they produce this game will continue until either the outright fraud is stopped by regulators or a cash flow shortfall forces recognition of the deception.

The damage when this unwinds, if it is not contained now by regulatory force, is going to be horrific. A concurrent collapse in consumer spending and bank balance sheets will lead us directly into the vortex of another financial crisis, and with The Government having shot its wad bailing out everyone in sight and with a severely-impaired balance sheet itself, there will be no effective policy response available to stop it.

The Consequences Of 'The Big Lie'

Stephanie — Mon, 14 Dec 2009 04:58:47 +0000

Posted by Karl Denninger

The Consequences Of “The Big Lie”

It may be “politics as usual” to never talk about how bad the economy really is – never talk about the budget deficit in honest terms – and never talk about how revenues are and have been cratering across the board for governments.

But when you are facing a truly horrific situation in this regard, and you need everyone on board to make sacrifices – especially government positions where employees feel especially entitled - ”politics as usual” is particularly dangerous.

This weekend Ireland’s largest public sector union has called the situation “explosive”:

Speaking today Peter McLoone, the general secretary of Impact and the chairman of the Public Services Committee of the Irish Congress of Trade Unions said that trust had effectively broken down between unions and the Government and that there was no basis that the parties would be able to go back into discussions in the short term.

Mr McLoone told RTE’s “This Week” programme that he could not rule out the possibility of all-out strikes as the reaction from members to the pay cuts was very strong.

He also indicated that public sector workers would no longer be prepared to engage with the Government on reforms along the lines of those proposed in the talks on an alternative for reducing the public sector pay bill without cutting pay rates.

And by the way, what’s “especially dangerous” mean? Strikes? Many government workers would do us all a favor if they went on strike. That would solve budget problems, you see – you don’t pay people who don’t work voluntarily, and a strike is voluntary! To that I say: Go ahead and strike as it will HELP the budget situation.

If this is a thinly-veiled threat of violence, well, we’re already seeing that in Greece. I guess we can add Ireland to the mix without too much trouble eh? Or shall we talk about Italy, where it appears Berlusconi was punched – that is, literally assaulted:

OME (AP) — Italian Premier Silvio Berlusconi was punched in the face at the end of a rally on Sunday by a man holding a small statue in his hand, leaving the 73-year-old media mogul with a bloodied mouth and looking stunned, police said. The 42-year-old man accused of attacking Berlusconi in Milan as he signed autographs was immediately taken into custody.

How far are we away from boiled rope and lamp posts folks?

The problem here, like in New York and other US States, is that Ireland, like The United States, refuses to confess to the full extent of the economic damage – nor will they confess to the fact that it is not getting better at any material rate.

Instead, we have the litany of “pumpers” and misleading (if not outright false) so-called “economic indicators” that are put forward with a smug smile, claiming that “we are out of recession.”

Oh really?

Then why is New York’s financial situation so bad that Governor Paterson has felt the need to do this?

ALBANY – Gov. Paterson will announce Sunday that he is taking the dramatic step of unilaterally withholding 10% in scheduled payments this month to schools and local governments, including New York City, the Daily News has learned.

“He’s basically paying out 90 cents on the dollar,” one source said.

This of course is going to provoke some pretty strong responses – including lawsuits. Not that it matters; you can’t get what doesn’t exist, no matter how much you want to complain about it.

This is not limited to New York and Ireland. Indeed, it is pretty much “pick your state” in the US, and among other nations, the list is long and distinguished – especially in Eastern Europe.

The distortions that governments (and traders acting on the “free money” paradigm) have applied to the markets in the last two years are unprecedented. Oil, for example, is trading around $70 – but why? Cushing (the main oil terminal in the US) is full to overflowing, banks are literally parking tankers full of oil at anchor rather than selling it, and every place you can buy and cram a barrel, it has been bought and crammed. This has “created demand” for that oil, but since the oil has not been actually consumed it is false demand – and that supply must, at some point, go to the market.

Kuwait’s recent announcement that they may pull their deposited funds (custodial funds) from Citibank is more likely due to their government’s knowledge of the book cooking (and oil demand cooking) and radical deterioration in their state finances. Eventually the piper must be paid, and these distortions will disappear. When they do, so will the oil price – and I suspect Kuwait knows this full well.

Never mind the usual government game: When challenged, simply black it out.

Yes, that’s an actual FOIA response. I guess I should go long Sharpie markers?

Don’t even get me started on the financial reform bill. Oh, I’ll have commentary on it – but my first read is that the lobbyists have once again done it to us, cold, dry and hard. The most-blatant example that I found with about 30 seconds of skimming are subtle changes in the so-called derivatives “regulation” section that allows a person to be an alternative “exchange.” That’s right. That would include an artificial person (e.g. Corporation) since it doesn’t say otherwise, which means that our dear old big banksters (represented in their lobbying by ”Do-we Cheatem and How”) have managed to actually remove what little regulation currently exists – while claiming to be for “strong and sound regulation of derivatives.”

That’s right – this “bill” will actually weaken financial supervision of the most dangerous part of the markets, and therefore increase, not decrease, systemic risk.

Pay no attention to Obama’s faux “anger”; he’s lying as well.

If he was actually pissed he would have directed Geithner to refuse to allow TARP repayments. He didn’t and what’s more important, he and Summers are playing kabuki theater with you:

One of the White House’s economic advisors, Larry Summers, also stated his frustration with Wall Street on CNN’s “State of the Union” Program. Summers commented, “Here is what I think they don’t get…It was their irresponsible risk-taking in many cases that brought the economy to collapse.”

That’s why you and Obama have put a stop to that irresponsible risk-taking, right? All derivatives are now on a public exchange, all positions marked to the market nightly with appropriate posted margin, the former 14:1 leverage limit has been re-imposed and Glass-Steagall is being put back together and enforced on the banks.

Oh wait – none of that is actually happening, is it Larry? You’re a liar and so is your boss. You, in particular, were one of the chief architects of this mess with your “deregulate everything” approach to financial institutions.

How long will you sit for this folks?

Will it be before or after you are out in the street, jobless, homeless and hungry when you finally wake up and say “enough damnit!”

October Credit-Card Delinquencies Rise Again, Approach Record Highs Says Fitch

Tyler Durden — Wed, 02 Dec 2009 16:25:20 +0000

US consumers keeps on purchasing Kindles on credit cards which they apparently have no intention of every paying off. The most recent Fitch report disclosed that October delinquencies have continued their steady climb, and together with charge-offs, are at near record highs: "Consumer credit quality remains under significant strain as a result of the persistent weakness in the labor markets," noted managing director Michael Dean. The Labor Department will report unemployment data Friday; the jobless rate is expected to hold steady at 10.2%, the highest level in decades, while the decline in payrolls is seen mitigating from the previous month.

Dow Jones reports:

All types of consumer lending have worsened the past several years, with borrowers falling increasingly behind and lenders writing off many billions of dollars of owed loans.
Fitch's credit-card performance indexes show late payments rising to their highest levels in five months and indicate higher charge-offs in the months to come.
Fitch's index on delinquencies of at least 60 days rose to 4.41% from 4.22% in September. Late-stage delinquencies are now 31% higher than year-earlier levels and just below the record high of 4.45% in June. Delinquencies of at least 30 days rose as well.

As Zero Hedge pointed out, and as Meredith Whitney has voiced her concernes about, the biggest threat to the economic going into 2010 may be that not only are banks dropping reducing overall credit availability, but that ongoing credit contraction to the tune of almost $2 trillion over the next several years will mean existing credit limits are tapped out as existing ones become increasingly maxed out.

This will likely further entrench the consumer into an accelerated deleveraging mindset, and no matter what the incremental liquidity from the Fed is, the deflationary pressures will likely continue. Which means that markets will continue in full melt-up mode to compensate for real economic losses, which benefit exlusively the top percentile of the US population as the middle and lower classes continue experiencing the brunt of the credit contraction. At some point the economic reality is sure to catch up with the market surreality. That will be the point when all the flawed market policies by the Administration and Bernanke become exposed for the clothesless emperors they are.

Dubai: Floating on an Island of Debt

asiablues — Sun, 29 Nov 2009 02:15:29 +0000

By Economic Forecasts & Opinions

Stock markets around the world cracked on Friday with the Dow Jones industrial average down more than 150 points (Fig. 1), and commodities plunging as Dubai debt woes unnerved investors, and sent tremors of uncertainty throughout all markets.

The crisis flared after Dubai, a part of the United Arab Emirates (UAE) federation, asked to delay interest payment for six months on $60 billion of debt issued by the state-run conglomerate Dubai World and its main property unit Nakheel.

Concerns that a government-backed investment company risked default ripped through world markets. Investors read it as a sign of yet another sovereign implosion after Iceland and Ireland, and recoiled from risk and piled into dollars.

Las Vegas on Steroids

Dubai World has served as Dubai’s main driver of growth, operating ports, transportation groups, spearheading real-estate & infrastructure projects both at home and abroad. Its real-estate subsidiary Nakheel built Dubai’s iconic palm-tree-shaped island, packed with luxury villas and hotels, many still under construction. Real estate and construction accounts for about 23% of Dubai’s GDP.

With little oil, Dubai financed much of this rapid real estate development with debt. After incurring its estimated $80-$90 billion of debt in a four-year construction boom to transform its economy into a regional financial and tourism hub, Dubai suffered the world’s steepest property slump in the first global recession since World War II.

Deutsche Bank estimates that Dubai’s property prices, both commercial and residential, have halved since August last year, and could fall a further 15-20% this year.

U.S. Banks Less Exposed

Most analysts believe U.S. banks are probably less exposed than European rivals to a potential debt default by Dubai World, but a lack of transparency and the interconnection of the modern financial system make it difficult to know which institutions are ultimately exposed.

Dubai World’s largest creditors are reportedly domestic banks in Dubai and Abu Dhabi. MarketWatch noted data from the Bank for International Settlements which put cross-border banking exposure for the UAE as a whole at $123 billion at the end of June. Of that total, European banks hold 72%, with the United States and Japan only holding 9% and 7% of the exposure, respectively. The United Kingdom is by far the biggest creditor with a share of 41%.

Reminder of Other Risks

On a global scale, Dubai World’s debt problem seems relatively minor, but it illustrates the impact from one tiny country in an increasingly interconnected world. The Dubai news also cast doubt over the strength of the U.S. economic recovery, and the prospects for a bottoming of property prices.

Commercial Real Estate

As pointed out in my previous article that the commercial real estate sector posed a much greater threat than the over-hyped “mother of all carry trades.” The Dubai debt crisis further reinforces this viewpoint.

The potential for contagion from Dubai’s debt woes could further unhinge an already fragile U.S. commercial real estate sector, whose values have already fallen 42.9% from their 2007 peak, close to the lowest since 2002, according to Moody’s. (Fig. 2) The latest Moody’s projection is for prices to bottom at 45-55% below their peak, but could drop as much as 65% from their peak in a “stress case”.

As commercial property values fall, debt defaults rise. The $3.4 trillion outstanding in debt backed by commercial real estate poses a real threat to the recovery. Trepp LLC reported that last month, delinquencies on U.S. commercial real estate loans that were packaged into commercial mortgage-backed securities reached 4.8%, more than six times the year earlier level. Hotel loans, at 8.7% distressed, have begun falling into delinquency faster than any other kind of commercial real estate debt.

Write-downs and losses at banks around the world have risen to more than $1.7 trillion since 2007 as the credit crisis undermined the value of assets owned by financial institutions, according to data compiled by Bloomberg. Any further deleveraging and the resulting credit tightening from commercial real estate would impede the financial sector and probably derail the U.S. economy sending it into another recession.

Housing Market Mortgage Crisis

So far, the appearance of recovery in the housing sector is being driven primarily by reduced prices combined with federal programs to lower mortgage rates with the goal of bringing more buyers into the market.

Based on a study released by Zillow.com, the foreclosure crisis has moved beyond subprime mortgages and into the prime mortgage market. (Fig. 3) While subprime borrowers are still a factor in the current foreclosure epidemic, it’s becoming increasingly apparent that the weak labor market is the driving force behind the mortgage crisis we face today.

According to the Mortgage Bankers Association, one in seven U.S. home loans was past due or in foreclosure as of Sept. 30, putting that quarterly delinquency measure at its highest level since t

he report’s inception, 1972, and up from one in ten at the beginning of the year.

The continued surge in delinquencies suggests that a recovery in the housing market could be hindered by the weak job market as well as by further fallout from the easy money and loose lending practices of the past. The foreclosures and delinquencies are expected to keep rising well into 2010, not leveling off until the unemployment rate starts to moderate.

In a study by First American CoreLogic found that one in four of all U.S. mortgage-borrowers owe more than the value of their properties in the 3rd quarter. And many experts didn’t expect U.S. home prices to hit bottom until early 2011, perhaps falling another 5-10%, as more foreclosures get pushed onto the market.

Negative equity is another outstanding risk hanging over the mortgage market.

Dubai Is No Lehman

The circumstances behind Dubai’s moves are murky, making it hard to gauge the exact risk to the pertaining bonds and Dubai’s own general creditworthiness. UBS cautioned that Dubai’s overall debt “might be higher than the generally assumed $80 billion to $90 billion, due to potential off-balance sheet liabilities. These could include unlimited and unquantifiable amount of credit default swaps (CDS) and other derivatives against the underlying assets, and once unraveled, could potentially erupt into a subprime-like crisis.

The current expectation; however, is that there’s a good chance that Dubai’s problems will probably prove a local issue. Most likely, Dubai, or its neighboring emirate, Abu Dhabi, won’t risk tarnishing their images and reputation further, and will come up with a reasonable resolution.

Even if Dubai goes into sovereign default, the amount is probably not enough on its own to threaten the financial system since any actual losses would be a fraction of the total. So, the problems in Dubai are unlikely to be as serious as last year’s Lehman Brothers collapse, nor is it a reflection on the ability of emerging markets to lead a global economic recovery.

Rational Expectations?

But Dubai could well spur a broader crisis of investor confidence in overly leveraged economies as market confidence world-wide is still fragile from the severity of the financial crisis. The debts of many emerging markets have risen even further as the countries governments have fought the ravages of the global recession by issuing more stimulus debt to fill the gap voided by private investment.

The spread of credit-default swaps on developing-nation’s bonds jumped 14 basis points after the Dubai news broke, the most in a month, to 3.24 percentage points, according to JPMorgan Chase & Co.’s EMBI+ Index. There is also a clear sign of potential contagion effects of global risk aversion on basically all risky assets, with the dollar and yen being the prime beneficiaries.

Rational expectations or not, for now, the Dubai crisis is simply a reminder that the severe global recession has relegated much debt to near junk status, and there still remains a high degree of uncertainty as to the percentage recoverable on all outstanding debt which is going to be coming due over the next 5 years.

Despite some seminal signs of green shoots in the news headlines during this 9 month liquidity driven rally in many asset classes around the globe, we should be reminded that all that glitters is not gold, and that the global economic recovery is still on shaky ground.

# “I know the odds are against me, but if there’s a win I’m gonna find it!” ~Goku #

Economic Forecasts & Opinions