America's Race to the Bottom

Please Register or Log in to view the hidden image!

Part of why banks (and the US) is in trouble is underwater mortgages: Read below.
“… 11.3 million homeowners -- or 24% of all homes with mortgages -- were underwater as of the end of 2009. That's up from 23% and 10.7 million borrowers three month earlier. …

"Negative equity is a significant drag on both the housing market and on economic growth," said Mark Fleming, chief economist with First American CoreLogic.
"It is driving foreclosures and decreasing mobility for millions of homeowners." {Cannot sell, move to new job in another city etc.}…

As equity gets more and more negative, some homeowners are choosing to quit paying and give the keys to the bank.* As long as negative equity remains a big problem, it will be difficult to stem the tide of foreclosures that continue to plague many local real estate markets around the nation. ..."

From: http://money.cnn.com/2010/02/23/real_estate/underwater_rates_rise/index.htm

--------------- (footnote is Billy T comment)
*Usually the economically smart move for both owner and the bank. Owner gets debt canceled and bank gets title without expense and delay of foreclosure. Also the risk of “owner rage” destruction of the house (or his selling the frig and washing machines, etc. and claiming they were robbed) is almost nil. One foreclosed owner recently bulldozed down his > $300,000 house!**

Many set fire to them if they have insurance for “replacement value,” especially in states where the bank cannot sue to claim other assets owner may have (his car, stocks, fire insurance paid funds, etc.). Out of work owners setting fire to their financed cars is also becoming more frequent. Insurance companies try to keep this quiet so idea does not spread. The term “fire sale” is getting a new literal meaning.

Also important to note is fact that owners turning keys over to the bank are NOT counted in the foreclosure rate / percentage.
If they were, the foreclosure rate would be approaching 30% of all underwater mortgages now! as this economically smart move becomes more common. (Studies have shown there is a positive feed back at work: If one of your underwater friends or neighbors "walks away" from his negative equity, you are much more inclined to do the same. I.e. the stigma against doing so is rapidly eroding.)

**See X-man2's YouTube video link in post 80 of bulldozed house.

---------------------
--------------------- Closely related News:
"... The Fed has been buying mortgage-backed securities, the bundling of home loans that are used to fund mortgage lending, since late 2008. But next month it plans to complete its purchase of $1.25 trillion in mortgages ... There is wide agreement that the removal of this support will mean higher mortgage rates,* which could hit housing prices and sales hard. Some even worry that this could cause the broader economic recovery to stall. The program was the largest single injection of cash into the economy by the Fed during the financial crisis ..."

From: http://money.cnn.com/2010/02/23/news/economy/fed_mortgages/index.htm

Billy T comment: The FED paid 1.25 trillion of tax payer money for this "Toxic Trash." If and when the FED tries to sell it on the open market, we tax payers will probably lose about a trillion dollars, but for now that lose is hidden.
----------
* I.e. all those with ARMs etc. mortgages will re-set. Read that as a step up in the default / foreclosure rates.

 

Log in or Sign up to hide all adverts.

Log in or Sign up to hide all adverts.

That is a big "if." OMG time is long past. Most just do not yet understand that. Here is today's continuing evidence (from C Schwab's daily letter):

"... Weekly initial jobless claims rose by 22,000 to 496,000, versus last week's figure which was revised upward by 1,000 to 474,000, compared to the consensus, which called for claims to decline to 460,000. The four-week moving average, considered a smoother look at the trend in claims, increased by 6,000 to 473,750, and continuing claims rose by 6,000 to 4,617,000, compared to the 4,570,000 forecast. ..."

 

Log in or Sign up to hide all adverts.

Please Register or Log in to view the hidden image!

"Surely you've heard of the onslaught* of people walking away from their homes because their property is worth less than the mortgage balance. Even borrowers who can afford their monthly mortgage payment are stopping, simply because it doesn't benefit them anymore. This is entirely legal in many states. After the house is forfeited, "non-recourse" laws prevent lenders from going after these borrowers' assets or garnishing wages in an attempt to be made whole.

{The US is about the only country that has these laws- Why the graph compares to US neighbor which does not.}

Individual homeowners aren't the only ones walking out. In December, Morgan Stanley (NYSE: MS) abandoned ship on five San Francisco office buildings, turning the properties over to its lender. ..."

Quote from: http://www.fool.com/investing/general/2010/03/03/the-7-words-that-will-save-america.aspx

Also I posted recent about a huge NY apartment complex (110 high rise buildings with 11,000 apartments - 6 billion dollars when bought just a few years ago, as I recall) that the owners walked away from last month.

* this is in text link to: http://www.fool.com/investing/general/2009/07/28/this-is-killing-housing-prices.aspx

Where you can read:

"... In a study of more than 1,000 American households, the report concludes that more than a quarter of existing mortgage defaults are "strategic" -- done by those who can afford their monthly mortgage payments, but choose to default anyway.

A main factor in strategic defaulting is the extent a home is underwater.
Percentage of Sample Declaring Intention to Default:
Underwater by:
$50,000 ......... 9.38%
$100,000 ....... 25.81%
$200,000 ....... 41.23%
$300,000 ....... 44.65%

The report also found the propensity to walk away within a specific ZIP code fed on itself, which the researchers attributed to "a contagion effect that reduces the social stigma associated with default as defaults become more common."

In other words, "Hey, if my neighbor's doing it, I might as well, too."

 

Productivity per laborer is soaring as companies get more out put with fewer workers to stay competitive. This may revive the Luddites* as more of the young work force cannot find jobs. American is in the worst shape of almost all advanced economies as others have less than replacement birth rates. I was shocked to see graphically that parents of the baby boomers were not reproducing like the current young are:

U.S. Births: 1950-2009 (Births in Thousands)

Please Register or Log in to view the hidden image!

This demographics and productivity gains implies high unemployment FOR DECADES.

---------------
* "The Luddites were a social movement of British textile artisans in the nineteenth century who protested—often by destroying mechanized looms—against the changes produced by the Industrial Revolution, which they felt were leaving them without work and changing their entire way of life. " - Start of wiki article here: http://en.wikipedia.org/wiki/Luddites which continues with: "At one time, there were more British troops fighting the Luddites than Napoleon I on the Iberian Peninsula. AND The Luddites met at night on the moors surrounding the industrial towns, practising drills and maneuvers, and often enjoyed local support."

The US already has armed groups practising in the woods, but mainly they are anti-taxes and anti-government. With the general view that the government has taken taxes from the middle class to give to rich well connected bankers, etc. it would not be hard for these groups to expand by including the growing ranks of the permanently unemployed.

Luddites clashed with the army etc. Will these clashes come again? I tend to think so, but it will be a few years more before the masses conclude that the Federal government has failed.

 

^ Whats the scale on the y-axis?

 

.

u.s.a. is really going "down down" !
china is toaday the second economic force of the world, soon, in the near future ,it will be the first,

Please Register or Log in to view the hidden image!

don't forget the middle-east in the not far future,
they started to use sunstable energy, and green energy, to reduce using their oil, they also started to produce, in cars industry, green cars, it started in saudi arabia, an arabian car, made by students, and it's going to be in industries, and in commerce, it's name is gazal, it's not cool, but, it's the first for them, still going ahead, also don't forget the north african contries, also india,

 

nah ... 2016 we´ll have a surpise candidate for the first place

Please Register or Log in to view the hidden image!

 

.

hehehehe, but for sure you'll have a big competion between u.s.a. and china
hey they have 1 600 000 000 people, they use iron, what u.s.a, europe, and japan all together use it in each year, in the future, they'll need more 7 saudi arabia to provide their oil and energy needs,
in the future, they will build more citires, and expand more, what equales, 7 from newyork cities
...

 

Here is one of the not counted unemployed:

Please Register or Log in to view the hidden image!

"In June 2008 {she} spent a few months coming to terms with moving back in with my parents, but started diligently applying for jobs a few months later.

I kept track -- since then I've applied for 759 jobs, have heard back from 23, and interviewed with two. I have 6 years experience in project management in the nonprofit sector. But even when friends pass along jobs to me, I just don't get excited about them anymore, knowing that odds are I'll do all this work putting something together and not even get an acknowledgment from the company. A few months ago, I just stopped looking because I've been doing volunteer work to try to keep my skills up and am putting in over 40 hours a week doing that…”

From: http://money.cnn.com/galleries/2010/news/1002/gallery.discouraged_workers/index.html where 6 more personal stories and photos are given.

From the looks of this young lady, she could always scrap her education and get job as Go-Go dancer in a bar.

 

.

hahahaha

 

From: http://www.bloomberg.com/apps/news?pid=20601109&sid=axnpzq.OM0BY&pos=11 :

"140 banks failed last year, and FDIC Chairman Sheila Bair said the number may be higher this year. It stands at 26 as of March 6." {That is day 6+28+31 = 65 of 2009}. If rate only continues (it is actually accelerating) then 146 banks will fail in 2010 I.e. 26x365/65 = 146. Early in 2009, I predicted 100 banks would fail in 2009. I now predict at least 156 banks will fail in 2010.

Not only is the failure rate slightly accelerating but the FDIC is planning to CAUSE more banks to fail – hard to believe, but true. Here is why:

The FDIC needs to raise cash to make whole the depositors of failed banks. They forced banks to pay several years in advance their insurance fees at the end of 2009. Thus, the FDIC will not have their normal income in 2010. (Already collected it to get thru 2009.)

Many of the 140 banks that failed last year had “toxic trash” assets carried on the books at face value. These assets now belong to the FDIC, which needs money and plans to sell them soon. If they bring 50 cents on a dollar face value (probably less, but to keep it simple I’ll assume that.) Then all still open banks holding similar “toxic assets” will be force to write their value down by 50%. That will push quite a few, which are already with little net worth now, to have negative net worth – I.e. to fail. Thus I conservatively added only 10 banks to the straight line projection that 146 will fail.

My prediction is probably again this year excessively conservative. I would take even money bet that 200 banks will fail in 2010 as many are also holding commercial real estate mortgages (in addition to toxic trash) and slightly more than half of all commercial real estate mortgages are already “under water.”

Unlike typical “moral” underwater home owner who can still (foolishly)* pay his mortgage, the investment companies owing more than the property value tend to turn the keys back to the bank when the next mortgage payment is due.

It is the old story:
If you owe the bank $1000 more than you have, you have a problem. If Ajax Real-estate Corporation owes the bank $350,000 more than the property is worth, the bank has a problem.

* Throwing good money after bad.

------------------------------
“… The Federal Deposit Insurance Corp. is trying to encourage public retirement funds that control more than $2 trillion to buy all or part of failed lenders, … Direct investments may allow funds such as those in Oregon, New Jersey and California to cut fees for private-equity managers, and the agency to get better prices for distressed assets, … Oregon’s retirement fund may contribute $100 million as regulators seek “the support of state pension funds to solve the crisis surrounding ongoing bank failures,” …
The FDIC is constantly looking at structures where we can get the greatest opportunity to tap into capital that we have not had the success reaching through previous disposition methods,” FDIC spokeswoman Michele Heller …
FDIC guarantees may soften the risk of investing public pension money in distressed banks, Whalen said. When the FDIC sells a failed bank, it typically shares a portion of the loan losses. “Financially sophisticated people do not assume that banks have recognized all of their real estate losses,” Kramer said, adding that it can still be a bad deal if a buyer overpays for a deposit franchise or if loans perform worse than expected. “We are in the early innings for commercial real estate.” {This large type and bold is Billy T’s emphasis.}

From: http://www.bloomberg.com/apps/news?pid=20601087&sid=aDuLDy3OUFmg&pos=6

Just a few minutes after I posted the above. FDIC is “scratching for cash” but does not want to beg from Congress.

 

There is a little good news on the economy's way into depression here:
http://www.sciforums.com/showpost.php?p=2510082&postcount=88
SUMMARY:
The bail out of Citi is very likely to give tax payers a profit of about $20 for every American, man, woman and Child.

See details at the link - I did not want to double post.

 

One reason we are racing to the bottom is that we think it is the top.

We seem to have lost the ability to determine which is which. :shrug:

 

Should we bring over a few thousand Chinese leaders to replace all our politicians? Don't worry about the Constitution forbidding this cause no one follows the Constitution anyways.Yea a Chinese President sounds good about now.What say you?

Please Register or Log in to view the hidden image!

 

That OP is monstrous...

How does anyone know for sure...

When we go about predicting the future there is something called self fullfilling prophecies...this is one of the reasons I am rather conservative about making predictions...though I do and when I do I try to make sure they are good ones...

 

I would just like to import their superior economic system. The CCP is mainly made up of men trained as scientist and engineers, (not like our lawyer filled Congress). They make rational long term investments, mainly in productive infrastructure. We should establish a long term infrastructure board to do the same, but Congress will not give up the funds. They are too valuable for "horse trading" vote deals that get bridges to nowhere built.

I.e. keep, as China has, the free market / Adam Smith 's invisible hand for deciding what consumer goods get made, but kill the short term (till next election) Congressional infrastructure decision process US is stuck with. For example, why can't he US be leader in high speed trains? Repair its bridges and leaking water lines, etc. - Answer, no benefits before the next election.

 

Here I have to disagree. The CCP are boobs benefiting from an international system we built. The problem in the USA isn't that the system isn't working, it's that we're not letting it work. I do think that we have a great system WHEN it works. Bailing out the rich is where we went wrong. People didn't learn the lesson and turned right around and gave themselves huge bonuses.


Anyway, in general I'd trust American capitalism over Chinese bureaucrats. And don't worry. In a generation when their spoilt idiot kids are running the show and there's no electoral process to remove them, average Chinese will be boned 10 ways over.


Oh, I read in the Economist that a number of Chinese cities have enough business space already built, that it will take until 2025 to fill it at 8% growth per year. So, that space will have to be torn down or let go at a huge loss. THAT is what can (and has) happen when you have CCP infrastructure projects motivated by something other than market demand.

I'm not saying the USA isn't royally f*cked, only that we seemed to have stopped being Market driven a long time ago, stopped caring about politics and pretty much handed our mental faculties over to the TV long, long ago.....

Please Register or Log in to view the hidden image!

We made, we'll sleep in it.

:shrug:
Michael
The Strong will Rise, the Weak will Fail

Please Register or Log in to view the hidden image!