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Sunday, May 31, 2009

From Mandelman Matters...Stop Blowing Sunshine Up My Skirt - Recovery, My Aunt Petunia

There are many blogs out there but this one really caught my eye. It is a must read. While this particular post contains some news headlines from CNN with commentary by the blog's author it also contains a section on the state of the financial situation especially as it relates to mortgages and the banking situation.

I am going to reprint only part of the post here but urge you all to visit Mandelman Matters. There is a lot of good stuff there. This post was published Sunday, May 31, 2009.

Reprinted with Creative Commons License authorization. The partial reprint below expresses the views and opinions of the author of Mandelman Matters. While it echo's the thoughts and opinions and statemnts of fact that I have, what you see below are those of Martin Andelman.

Copyright © 2009 Mandelman Matters, Martin Andelman in concert with IEHI, Inc.

Credits: Matteo Turchetto | Andreas Viklund | Modified by Justin

Creative Commons License

So, there you have it… today’s “Hot Topics” according to

Oh, and did you hear last week’s news? The economy has started getting better. The worst is behind us. It’s all going to be okay after all. Why were we so worried anyway? All we ever needed to do was close our eyes and say: “There’s no place like home… there’s no place like home…” Next thing we know… bam… Auntie Em’s baking pies once again.

Apparently, that whole debate over the $700 billion stimulus bill was completely unnecessary. The Republicans said it wouldn’t stimulate anything until 2011, and the Democrats said it would… but neither argument made any sense at all, because even though we haven’t even started spending it yet, the worst is over and blue skies are right around the corner. Just the threat of a stimulus package was enough to send our economy racing towards prosperity.

“What about the banks,” I hear some of you cry? Banks, shanks… they’re fine. They posted wonderful profits for the first quarter and hear tell they’re all just itching to pay back the TARP funds so they can start overpaying their top executives again. So, I guess the TARP funds did actually fix things after all. See what buying some preferred shares can do? Viola! Problem solved.

But… the mortgage meltdown, the foreclosures, housing prices in a free fall? Oh, pish tosh… stop your whining. It’s just a market correction. In fact, it’s more of a buying opportunity than anything else. The president’s plan has only just begin to refinance mortgages for the responsible homeowners and as to the rest… well, they’re the irresponsible ones, who cares about them anyway?

Unemployment? Didn’t you hear? The numbers for April weren’t as bad as expected. Yea! And apparently the drop in GDP was only 5.7%! Fantastic. I’m going shopping!

What an incredibly obvious and odious pile of crap…

Look, if you’re one of those people who need the news to be good, fine. Perhaps you should consider heading over to where you can read a whole pile of happy horse manure. On, the bad stuff only happens in Pakistan and North Korea. Me? I can’t do it. I need to understand what’s really happening because I’m just nutty enough to believe that if enough people know, perhaps we can do something to change things.

First of all, between 1929 and 1932, the Dow Jones Industrial Average surged over 20% four times, only to fall back each time below previous lows. Today’s crisis has already seen five “rallies” where the market rose by 10% before subsiding once again. The pace of the decline has already been steeper than that experienced in the 1930s. U.S. GDP has dropped for three consecutive quarters, and the IMF is forecasting a 1.3% drop in global output this year, the first time that either of those things has occurred since the Great Depression.

U.S. companies are still defaulting on their debts with increasing frequency, with 40% of corporate bond issuers doing so in April of this year alone. And Moody’s predicts the default rate will reach 14.3% by next year.

Next year? I thought we were expecting a recovery by next year. Stop it. Stop it. Stop it. They’re making my ears bleed.

According to the National Delinquency Survey, which was released Thursday, May 28th by the Mortgage Bankers Association (MBA), the first three months of this year showed the largest quarter-over-quarter increase in foreclosure starts since the association began tracking foreclosures in 1972. What does that work out to in American money? 616,000 homeowners received foreclosure notices in Q1 of 2009.

There was also a big increase in the number of mortgages 90-days plus overdue, 3.39% of all loans compared to 3% in the previous quarter, which means a lot more foreclosures are on the way. One year ago the percentage of mortgages 90-days plus overdue was less than half of what it is today at 1.56%.

That’s not the only change in the foreclosure crisis that’s occurred since last year. Today, it’s not the sub-prime mortgages that are defaulting in such large and growing numbers, it’s the PRIME mortgages that are the problem. Over the last year, the percentage of foreclosures on PRIME, FIXED RATE mortgages, which are the vast majority of all mortgages, has more than doubled.

Jay Brinkmann, Chief Economist for the MBA, told CNN: “For the first time since the rapid growth of sub-prime lending, prime fixed-rate loans now represent the largest share of new foreclosures.” Brinkmann also said that the number of mortgage defaults won’t fall until the employment situation improves.

Wow. Now there’s sheer genius for you. An economist that can connect dots. I think I’m in love.

CNN also reported the following: “I don’t see how it can’t get uglier,” said Dean Baker of the Center for Economic and Policy Research. “Unemployment will continue to go up and you’ll have a lot of people out of work, prime workers in their 40s and 50s, who will exhaust their resources.”

And as long as we’re quoting CNN, here’s the rest of their May 28th article on the subject:

The fact that delinquencies and foreclosures continue to rise is terrible news for the overall economy, according to Pat Newport, a real estate analyst for IHS Global Insight. “Just about every number in the report is a record high,” he said. “It indicates that the problems with the banks will continue for a long time.”

What problems with the banks? What’s he talking about? I thought the banks were posting record profits and paying back TARP funds. What’s going on here? I’m so confused.

Go ahead, CNN, straighten me out with the last paragraph:

“MBA’s forecast, a view now shared by the Federal Reserve and others, is that the unemployment rate will not hit its peak until mid-2010,” he said. “Since changes in mortgage performance lag changes in the level of employment, it is unlikely we will see much of an improvement until after that.”

“After that.” Would that be “some time after that”? Ah, I see. Now there’s a forecast that’s destined to be 100% accurate. Nothing will improve until “after that”. Got it. I do love it when those economist people get precise and technical.

The cold hard fact is… demand has plummeted, with the exception of the government programs, credit couldn’t be tighter, and the collapse of the stock market have all combined to scaring the heck out of consumers and they’re now set on saving, not spending. And this is not a good thing at all.

About a year ago, I saw a model that was put together by David Rosenberg, who was then Chief Economist at Merrill Lynch (now he’s a teller at Bank of America in Glendale California, I believe). His model showed that if the savings rate in America reached 4%, our economy would have serious problems, and some estimates show we are already saving at near 10% levels.

The last three serious recessions have ended because baby boomers have been wiling to spend us out of them. Remember after 9-11… Bush told us to go shopping and on vacation. I listened and left for Hawaii a couple of weeks later, after shopping for new Tommy Bahama shirts and shorts before I left. (Hey, I’m a patriot, so sue me.) But this time, it’s going to be very different, largely because I already have enough Tommy Bahama outfits to last a lifetime.

I realize we’re pumping trillions into the economy, or at least into the banks, and that will have a stabilizing effect eventually, but the reality is that most of the world’s economies will be dependent on their governments for many, many years. Don’t be fooled into complacency by the twitches of an economy on life support, as the Economist magazine put it in its May 1st issue. “Any real recovery depends on government demand being supplanted by sustainable sources of private spending. And here the news is almost uniformly grim.”

But what about consumer confidence… what about consumer confidence? I’ll be more confident, I promise. Really, we’ll all agree to be more confident from now on, okay? Swear. Pinky swear. Okay, can we please skip the decade of “diminished expectations” now? Pleeaasse? Look, I’m confident… we’re all being confident…. Wahhhhhhhh.

Sure the stock market has twitched up 10% from its doldrums, and many people were undoubtedly fooled to at least some degree by the earnings reports that met or exceeded expectations. But, and I’m sorry to be the one telling you this, it’s just more of that same crap sandwich they’ve been feeding us all year.

How’s this for a disturbing statistic related to those “surprising” earnings reports: According to Andrew Lapthorne of Societe Generale, 62% of American companies missed their sales expectations in the first quarter of 2009. And you know what that means, right? That means accounting shenanigans played a role in the surprising earnings that bumped up the stock market and got everybody talking about recovery being around the corner. Next quarter, or as soon as the accounting hocus pocus has run its course, watch out… it’s going to be like getting on the elevator on the Observation Deck at the Sears Tower in Chicago. “Going down?” (Cool… did your ears pop?)

But, what about the banks? What about the banks? Tim said they’re okay, didn’t he? He gave them all stress tests, didn’t he? Tell me they’re okay… pleeasse

Well, besides the fantasyland assumptions that were used in the published stress test data, Bank of America came up $34 billion short of the test’s safety mark. $34 billion. We’ve already got near $200 billion in BofA. Hell, what’s another $34 billion? We’ve got $79 billion in cash injected into Citigroup, and that bank would only cost about $12 billion if you bought up all of its outstanding shares.

(GM’s another fabulous investment for the taxpayers, by the way. We’re putting in about $50 billion, in order to own 70%, and last Friday the company was valued at about $450 million… not even half a billion. We’re shrewd I’ll say that for us.)

Still, we’re still doing what the banks want… every single time. The Democrats wanted the “cram down” legislation to pass, and even with their control of the house and near super majority in the senate, with the banking lobby opposing it, the bill got killed by enough of a margin that is unlikely to come up again anytime soon.

Simon Johnson, a onetime chief economist at the IMF (International Monetary Fund) describes the situation between Washington D.C. and the banks this way: “Wall Street has become an oligopoly that has left a generation of politicians and regulators mesmerized and loath to upset it.”

And why would anyone in Washington want to upset Wall Street’s bankers? According to the non-profit Center for Public Integrity, they’ve pumped roughly $500 million into lobbying efforts and campaign contributions over the last decade, and the nation’s top 25 sub-prime lenders have chipped in to the tune of an additional $380 million. I believe that’s what they meant when they coined the phrase: “Bought and paid for.”

The Economist had quite a bit more to say at the end of the same May issue article, and although I usually don’t like to do this… since I couldn’t say it any better… and in the hopes that someone may believe them over me… here goes, word for word:

“Start preparing for the next decade…

Welcome to an era of diminished expectations and continuing dangers; a world where policy makers must steer between the imminent threat of deflation while countering investor’s reasonable fears that swelling public debts and massive monetary easing could eventually lead to high inflation; an uncharted world where government borrowing reaches a scale not seen since the second world war, when capital controls ensured that savings stayed at home.

How to cope with these dangers? Certainly not by clutching at scraps of better news. That risks leading to less action right now.

The worst global slump since the Great Depression is far from over. There is work to do.”

What else can I say? We all need to stop buying the crap we’re being served. We’re running out of time. The banks will bleed billions until the foreclosures are stopped. At some point we will need to take the toxic assets off of their balance sheets. If we buy them low, we’ll leave gaping holes in the bank balance sheets and we’ll need to give them many billions to fill those holes. If on the other hand, we pay face value for the toxic assets, then we’ll be giving the banks many billions anyway.

Do you get it? We’re going to pay for this no matter how you slice it up. The only question is… how toxic will we allow the assets to become? You want to know another way to phrase that same thing: “How long will we allow the foreclosures to go on?”

The longer they are allowed to continue, the more toxic the bank assets become. Funny how that works, isn’t it. So, it’s actually NOT about paying for your neighbor’s kitchen remodel. Rick Santelli is in fact an insensitive jackass, but he’s also a moron.

And it’s not about sub-prime borrowers… prime’s the problem now, remember? Blaming this on sub-prime borrowers was the P.R. campaign launched by the banks. It was like confusing the fuse with the bomb.

Yeah, so you know what they say about all roads and where they lead… to a foreclosed Rome. And with a finishing line like that, it’s only appropriate to add: Sic Transit Gloria Mundi

… Thus passes the glory of the world.

So there it is. Well said Mr. Andelman.


  1. By knowing your local real estate investing market, you're able to keep your finger on the pulse of your local community and to stay abreast of changes in trends, sales prices and rental rates. Knowing immediately about these changes is critical to your investing future.

  2. Fitting to use Oz as the begining of your article, because Obama is like the Wizard (a fake)and your like Toto peeing on the poppies. Santelli was against the banks, AIG,and a BAD housing plan, that the W.H. changed after Santelli's rant.(Thank-you Rick)Rick was against rewarding bad behavior with the dreams of us little people, remember what happened to the wicked witch in Oz?